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Vimpelcom merger scheme set to create $25bn company

Vimpelcom merger scheme set to create $25bn company

Egyptian billionaire Naguib Sawiris is in talks to merge the bulk of his telecommunications assets with Russian mobile-phone company
VimpelCom Ltd in a transaction that could create a company valued at more than US$25 billion, insiders said yesterday.

Sawiris would become a significant minority investor in the new company, which would include his Weather Investments SpA’s 51 percent stake in Egypt’s Orascom Telecom Holding SAE and Italian mobile operator Wind Telecomunicazioni SpA, said the sources.

Although negotiations were progressing, the structure of a deal hadn’t been decided, and an agreement might not be reached, the sources said.
“The acquisitions will lead to a significant increase in

VimpelCom’s debt and will trigger a review by ratings agencies but not necessarily a downgrade,” said Chris Weafer, chief strategist at Ural-Sib Financial Corp. “A lot will depend on price paid for the assets and the impact on cash flows and the balance sheet.”

The debt for VimpelCom Ltd and its subsidiaries, including Cambodia’s Beeline mobile-phone service provider, would increase to 2.5 times earnings before interest, taxes, depreciation and amortisation following the acquisition, said Maxim Raskosnov, a banking analyst at Moscow-based investment bank Renaissance Capital. This compares with a current level of 1.5 times EBITDA.

Wind Italy had net debt of €8.29 billion (US$10.5 billion) as of June 30 and Orascom Telecom had debt of $4.61 billion at that date.

The transaction would create an entity with a combined total mobile subscriber base of more than 200 million customers and give VimpelCom, Russia’s second-largest mobile-phone operator, access to markets in Africa and the Middle East.

It is Sawiris’s second attempt this year to sell Orascom assets, after talks with South Africa’s MTN Group Ltd collapsed in June.

VimpelCom, with headquarters in Amsterdam and listed in New York, was formed by Russian billionaire Mikhail Fridman’s Alfa Group and Norway’s Telenor ASA to consolidate holdings in Russian and Ukrainian mobile-phone operators. VimpelCom is 39.6 percent-owned by Telenor, while Alfa’s Altimo unit controls 39.2 percent and minority shareholders own 21.2 percent, according to VimpelCom’s website.

Telenor spokesman Dag Melgaard and VimpelCom’s spokeswoman Elena Prokhorova yesterday declined to comment. A spokeswoman for Wind said the division wasn’t in talks. Sawiris and spokespeople for Weather and Orascom Telecom couldn’t immediately be reached for comment.

VimpelCom and Weather were discussing issues including the structure of a combined entity and corporate governance, and there remained a chance that no deal would be reached, said one source.

VimpelCom has a market value of about $19 billion. Pierre Merveille, a senior credit analyst at Spread Research, said the value of Weather’s combined holdings is close to $6 billion, consisting of $2.4 billion for Orascom and $3.6 billion for Wind, excluding debt.

“One of the attractions of the deal would be the ability to reduce financing costs of Mr Sawiris’s assets by using VimpelCom’s balance sheet and ‘creditability’,” Dalibor Vavruska, an analyst at ING Groep NV, said last week.

Sawiris is restructuring debt. VimpelCom posted a $412 million profit in the first quarter.

VimpelCom Chief Executive Officer Alexander Izosimov said in February that the company had a structure that was “very adaptable and open for mergers” and may “actually create quite a sizeable player”.

MTN, Africa’s largest mobile-phone operator, ended talks to buy some of Orascom’s assets in June after the Algerian government objected to the sale of Cairo-based Orascom’s unit in that country. The government ordered the division to pay $596 million in back taxes last year. Orascom, the biggest mobile-phone operator in the Middle East, said in April that it paid the disputed amount, pending an appeal.

The Algerian government has expressed that it is interested in buying the unit, known as Djezzy.

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