Vimpelcom and Weather formally announce merger plans

5 Oct 2010

Confirming rumours that had gathered pace earlier this week, Russian telco Vimpelcom has announced that it has reached an agreement with Weather Investments, the investment vehicle founded and run by Egyptian entrepreneur Naguib Sawiris, under which the duo will merge. Under the terms of the deal, which the companies claim will create the world’s fifth largest mobile group by subscribers, Vimpelcom will take control of Weather’s 51.7% stake in Egypt-based cellular group Orascom Telecom Holding and all of Italian fixed, mobile and broadband operator Wind Telecomunicazioni SpA; in return Weather shareholders will be handed 20% of the shares (valued at USD4.7 billion) in the new, enlarged Vimpelcom in addition to USD1.8 billion in cash. Further, on completion of the deal Weather will demerge Orascom’s assets in Egypt (MobiNil), North Korea (Koryolink) and ‘certain sub-sea cable and internet portal operations’, while those assets of Wind Italy to be demerged include the Libero internet portal, Wind International Services wholesale carrier subsidiary and the operation of a sub-sea cable between Italy and Greece. Greek operator Wind Hellas meanwhile is entirely excluded from the deal.

Following the issuance of the new Vimpelcom shares, Norway’s Telenor and Altimo Holdings & Investments Limited (part of Russia’s Alfa Group) will hold 31.7% and 31.4% of the economic rights and 29.3% and 36.4% of the voting rights, respectively, of the expanded entity. Minority shareholders in Vimpelcom will represent 17% of the economic rights and 15.7% of the voting rights.

Post-merger Vimpelcom’s revenue base is expected to be significantly diversified; based on 2009 pro forma revenues, which totalled USD25.1 billion for the full year period, existing operations in Russia will represent 35% of turnover, while Wind Italy will represent 34%. The companies have also claimed that there is ‘significant potential for value creation from synergies between Vimpelcom and Weather’s operations, with an estimated net present value of USD2.5 billion’. Orascom Telecom Holding has operational units in countries including Algeria (Djezzy GSM), Pakistan (Mobilink), Tunisia (Tunisiana), Bangladesh (Banglalink) and Canada (Globalive, or Wind Mobile). It also has operations in Africa through its majority-owned subsidiary Telecel Globe, in Zimbabwe, Burundi, Central African Republic and Namibia, as well as a contract to manage state-owned cellular operations in Lebanon.

Jo Lunder, Vimplecom’s chairman, commenting on the deal, said: ‘Vimpelcom’s Supervisory Board has fully endorsed [its] expansion strategy and the proposed transaction with Weather. This combination creates a top tier global telecoms company with strong platforms across Europe, Asia and Africa. The board is confident that this transaction will create significant long-term value for all our shareholders.’ Mr Sawiris meanwhile noted: ‘This landmark transaction is a true reflection of the high quality of our Orascom Telecom and Wind Italy assets and of the significant value that we have created over the years for our shareholders. We share a common vision with our new partners at Vimpelcom of the exciting prospects of our new, enlarged and diversified telecoms platform. Moreover, I am confident that our minority shareholders in Orascom Telecom will benefit from the synergies created by the combination of the two entities, especially in the area of procurement, and by the overall strengthening and de-risking of the Orascom Telecom balance sheet.’

Final board and shareholder approvals still need to be obtained from both companies before the transaction can be completed, and it is expected that Vimpelcom will hold an extraordinary general meeting (EGM) before the end of 2010. Receipt of regulatory approvals and the closing of the transaction are expected in the first quarter of 2011, with respective demergers due to take place by 3Q 2011.