Alfa Group, Telenor agree to merge VimpelCom, Kyivstar
MOSCOW. Oct 5 (Interfax) - Norwegian Telenor and Russian Alfa Group have agreed to merge VimpelCom and Ukrainian Kyivstar, ending a prolonged battle over the future of the two jointly owned assets.
"The parties have reached an agreement to combine their holdings in OJSC Vimpelcom and Kyivstar into a new jointly-owned mobile telecoms operator, Vimpelcom Ltd," Telenor and Altimo, which manages Alfa Group's telecommunications assets, said in a joint statement.
Vimpelcom Ltd will be incorporated in Bermuda, headquartered in the Netherlands and listed on the NYSE.
Alfa Group will have 43.9% of voting shares in the new company, Telenor will have 35.4% and 20.7% of voting shares will be in free float.
The VimpelCom board has given its backing to the deal based on the conclusions of the special working group made up of three independent directors, the mobile operator said in a statement.
The deal must be approved by shareholders representing more than 95% of VimpelCom shares. The merged company's pro-forma profit margin was 49.9% in 2008, revenue totaled 12.6 billion rubles, EBITDA was 6.3 billion rubles and the subscriber base numbered 85 million.
Vimpelcom Ltd's nine-member board of directors will include three representatives each from Alfa and Telenor as well as three independent directors. Neither of the two main shareholders will hold a veto.
The chairman of the board will be an independent director unless Alfa and Telenor agree otherwise. The general director of the merged company will be independent of both main shareholders. His appointment must receive support from six of the nine directors.
The shareholders' agreement is subject to New York law. Disputes will be settled in London arbitration.
The deal values VimpelCom and Kyivstar in the proportion 3.4:1.
Owners of preferred shares in VimpelCom will receive preferred shares in VimpelCom Ltd. They may be converted into ordinary shares after 30 months.
"The united company will provide high-quality integrated mobile telecom services in Russia, Ukraine and other CIS countries, as well as Georgia, Vietnam, Cambodia and Laos," the statement says.
Telenor and Altimo "have agreed to suspend all their ongoing legal proceedings and take action to withdraw or settle them prior to the transaction being completed," it says.
Jon Fredrik Baksaas, President and CEO of Telenor, said: "We have turned a five-year struggle into an exciting venture for the future, and are pleased to announce an agreement that will enable us to focus completely on the long term value creation opportunity of the new company and put all previous disagreements behind us. We strongly urge all other OJSC Vimpelcom shareholders to support the proposed transaction and join us in forming Vimpelcom Ltd."
Alexei Reznikovich, CEO of Altimo, said: "The new company will have unparalleled experience in providing modern telecoms solutions in strongly competitive environments. Moreover, the new company will be strong financially and therefore much more attractive to investors all around the globe who are looking for stable investment opportunities. We are confident that this merger will substantially increase shareholder value of the new company."
"Vimpelcom Ltd intends to make an offer whereby OJSC Vimpelcom shares and ADRs will be exchanged for Depositary Receipts ("DRs") representing shares in Vimpelcom Ltd. (the "Exchange Offer"). Immediately following the successful completion of the Exchange Offer, Telenor and Altimo will contribute their respective shareholdings in Kyivstar in exchange for shares in Vimpelcom Ltd. The parties expect to complete the proposed Exchange Offer and the other related transactions by mid-2010, following which Vimpelcom Ltd. intends to delist OSJC Vimpelcom," the statement says.
VimpelCom will become a 100% subsidiary of VimpelCom Ltd.
"Vimpelcom Ltd intends to offer: to all holders of OJSC Vimpelcom ADRs: 1 Vimpelcom Ltd. Common DR or 0.0005 Russian Rubles in exchange for each OJSC Vimpelcom ADR; to all holders of OJSC Vimpelcom common shares: 20 Vimpelcom Ltd. Common DRs or 0.01 Russian Rubles in exchange for each OJSC Vimpelcom common share; and to all holders of OJSC Vimpelcom preferred shares: 20 Vimpelcom Ltd. Preferred DRs or 0.01 Russian Rubles in exchange for each OJSC Vimpelcom preferred share."
"When Telenor and Altimo contribute their Kyivstar shares to Vimpelcom Ltd, the effective exchange ratio will be 28.225 Vimpelcom Ltd shares for each Kyivstar share."
Analysts at investment companies and banks were unanimous in praising the deal, saying the terms of the merger are advantageous for VimpelCom's minority shareholders.
They also said VimpelCom's value will be enhanced by the very fact the two main shareholders have reached agreement, ending a dispute that has dragged on for years.
Uralsib recommended that VimpelCom shareholders accept the exchange offer. Uralsib's Konstantin Chernyshev said the valuation is favorable for VimpelCom shareholders.
The Enterprise Value (EV)/subscriber is $240 for Kyivstar compared with $388 for VimpelCom, while Kyivstar's EV/EBITDA ratio is 3.9 compared with 5.4 for VimpelCom. Meanwhile, the merger deal values VimpelCom and Kyivstar in the proportion 3.4:1.
UniCredit Securities said the deal would create significant synergies and increase VimpelCom's value.
Unicredit believes the 3.4:1 ratio is fair. It recommends that VimpelCom shareholders accept the exchange offer.
Merger with a Kyivstar that is not burdened with debt will improve VimpelCom's financial situation, Viktor Klimovich at VTB said.
Credit Suisse said the merger is the best possible outcome of the shareholder conflict. Its initial evaluation is "neutral to positive."