Vimpelcom reportedly close to USD7 billion Sawiris merger

4 Oct 2010

Russian mobile operator Vimpelcom, which is part owned by the Alfa Group and Norwegian telco Telenor, is close to finalising a USD7 billion deal to merge with most of the telecommunications assets of Egyptian telecoms entrepreneur Naguib Sawiris, according to reports in the Financial Times. Under the deal, which could be announced as early as today, Vimpelcom would secure most of Sawiris’ telecommunications assets in emerging markets, plus Wind – Italy’s third largest cellco by subscribers. The potential acquisition has been rumoured for several months, but on 1 September Sawiris said: ‘We are not only talking to [Vimpelcom], we are talking to anybody … We have two things on our agenda right now – solving the Algerian issue [where the local government wants to block attempts to sell Orascom’s mobile unit Djezzy] and, second, finding a good partner for the group.’

If the transaction goes through as planned, the enlarged Vimpelcom group would be the fifth largest mobile operator in the world in terms of subscribers, roughly doubling its profits in the process. Weather Investments, Sawiris’ private investment vehicle which controls Italy’s Wind and Egypt-based Orascom Telecom, could receive roughly USD2 billion in cash under the deal, plus a 20% stake in Vimpelcom, worth an estimated USD4.8 billion. Vimpelcom’s board was due to meet on 3 October to approve the deal with Weather. The outcome of the board meeting is currently unknown, but potential obstacles to the purchase are thought to include significant stakeholder Telenor’s attitude towards the deal, and the issue of finding an appropriate role for Sawiris himself in the combined group. Telenor confirmed last month that it would back plans by Vimpelcom to expand in new regions, but was concerned about the dividend policy. At this stage, it is unknown whether Telenor and fellow stakeholder Alfa have agreed on the matter between themselves.

Vimpelcom’s acquisition is also due to include Djezzy, Orascom’s biggest revenue generator. Russian president Dmitry Medvedev is expected to visit Algeria this week, in an effort to seal the deal; the Algerian government claims to have the first refusal over any purchase of Djezzy. Last week Djezzy was hit with a USD230 million preliminary tax reassessment by the Algerian government. Orascom has already unsuccessfully challenged a USD600 million back-tax bill levied by Algeria for 2004-2007. Last year, in a controversial move, Algiers vetoed the sale of Djezzy to South Africa-based MTN Group, and some insiders fear that the government could intervene once again.