Telenor and Alfa face off in the Vimpelcom boardroom

14 Apr 2005

The major shareholders of Russia’s second largest cellco Vimpelcom are embroiled in a hostile open feud concerning their conflicting plans for the operator’s future. Domestic conglomerate the Alfa Group is trying to push through a USD200 million purchase of Ukrainian Radio Systems, a minor operator in neighbouring Ukraine that offers services under the name WellCOM. Alfa claims that WellCOM possesses plenty of potential for growth and has called for a board meeting on 22 April to discuss the potential acquisition of the operator. However, fellow shareholder Telenor of Norway is fiercely opposed to the purchase to the point where it yesterday issued a press release entitled ‘Telenor Will Repel Illegal Assault on Russian Mobile Asset’. Telenor and Alfa already share ownership of one of the Ukraine’s biggest mobile operators, Kievstar, and the Norwegian company says a potentially costly raid for the far smaller WellCOM has ‘no business merit’; at the end of 2004 Kievstar had 6.25 million users compared with WellCOM’s estimated 50,000.

Pledging to fight Alfa’s ‘unlawful corporate attack’ on Vimpelcom, Telenor is concerned that Alfa could get approval for the acquisition due to a recent ruling made by a business court in southern Russia’s Krasnodar region, which has removed the requirement for 80% of Vimpelcom shareholders to back any board decision. The court hearing was prompted by a private minority investor in Vimpelcom, Victor Makarenko. Mr Makarenko only purchased his shares last October and it is widely rumoured that he has undeclared links to the Alfa Group. Telenor has 26.6% voting rights and three seats on Vimpelcom’s nine-member board, but under the new ruling this alone would not be enough for it to block the proposed WellCOM purchase. Alfa currently has 32.9% voting rights in Vimpelcom and has made it known that it intends to increase its stake to 45% with a stock market raid on the NYSE. If successful, Alfa will up its number of directors on the cellco’s board to five, giving it the simple majority now required to approve any executive decisions, not least the purchase of WellCOM. Telenor is frantically attempting to have the Krasnodar court decision overturned before the proposed board meeting: ‘We feel it is imprudent for the board to consider this proposed acquisition at a time when legitimate corporate governance of Vimpelcom is suspended due to an attack of this nature,’ the company claimed in its statement.