CAIRO, (AP) — Russia’s VimpelCom Ltd and Weather Investments, the investment company headed by Egyptian telecom mogul Naguib Sawiris, said they are merging to form what would become the world’s fifth largest mobile telecommunication service provider in a deal valued at over $6.5 billion.
Under the agreement announced Monday, VimpelCom, which is Russia’s second largest mobile phone service provider, would own via Weather 51.7 percent of Egypt’s Orascom Telecom and all of Italy’s Wind Telecomunicazioni SpA, both of which are headed by Sawiris. Excluded from the transaction is OT’s Egypt and North Korea operations.
“This combination creates a top tier global telecoms company with strong platforms across Europe, Asia and Africa,” VimpelCom’s chairman Jo Lunder said in a statement.
VimpelCom said Weather shareholders would get 326 million new common shares, making up 20 percent economic interest and 18.5 percent voting interest in the new company as well as $1.8 billion in cash.
The announcement came hours after the Egyptian stock exchange halted trading in Orascom Telecom’s shares pending a reply from the company to reports of the possible merger. OT, along with France Telecom, jointly operates Mobinil, Egypt’s largest mobile phone service provider by subscribers. It also has operations in Algeria, North Korea and several African and Asian nations.
VimpelCom shareholders will likely vote on the deal by the end of the year and that it would close in the first quarter of 2011. The new company would have operations in 20 countries and have about 174 million subscribers. Post-transaction net debt would be up to $24 billion, the companies said in a joint statement.
Sawiris said he was confident that OT’s minority shareholders would “benefit from the synergies created by the combination of the two entities.”
The deal marks the second attempt by Sawiris to sell some or most of OT’s non-Egyptian assets this year. An earlier deal with South Africa’s MTN Group fell apart largely because of a dispute between the Egyptian firm and Algeria over some $600 million in back taxes owed by Djezzy, its Algerian unit and the company’s chief cash cow.
Algeria had blocked the deal, saying it had the first option to buy the Algerian unit. The country, however, has yet to move on that purchase.
Complicating matters for OT is a new tax claim by Algeria, an issue which may be eased with Russian President Dmitry Medvedev’s visit to the North African nation this week.
Algerian authorities last week handed OT a new notification about a $230 million tax reassessment for 2008 and 2009. OT said it would dispute the new claim. Any deal with VimpelCom would likely have to include Djezzy to be successful given that the unit generated the most revenues for OT last year.
Analysts, however, have voiced concern that Algerian authorities will allow for an easy transaction.
Cairo-based Mideast investment bank Beltone Financial said in a research note Monday that it does not believe Algeria will “allow this deal to proceed without it obtaining a share of the financial benefit, potentially through acquiring at least a 49 percent stake in Djezzy … as well as the assigning of a capital gains tax on the proceeds from the sale of the remaining stake in Djezzy.”
It also remains to be seen whether VimpelCom’s purchase into OT would trigger a mandatory 100 percent tender offer for Mobinil, as Egyptian regulators had indicated was necessary during OT’s dispute with France Telecom last year. The two companies ultimately settled the matter after it had dragged on for years.
VimpelCom, which is jointly owned by Russia’s Alfa Group and Norway’s Telenor, had a net debt of almost $4 billion by the end of the first half of 2010. Wind’s net debt stood at about $10.6 billion.
VimpelCom said that upon issuance of the new shares, Telenor will hold 31.7 percent of the economic rights in the company while Alfa’s Altimo would control 31.4 percent. Minority shareholders would hold 17 percent of the economic rights.