Market Watch

VimpelCom Completes Merger with Wind Telecom


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Independent Russian telco, VimpelCom, which offers fixed and mobile services, has completed a $6.6bn merger of its assets with telecoms investment company Wind Telecom (formerly Weather Investments), first announced in October 2010.

Under the terms of the transaction VimpelCom owns 51.7% of Orascom Telecom, which indirectly operates mobile networks internationally, and 100% of Wind Italy, which operates as a fixed and mobile operator in Italy only; both were previous subsidiaries of Wind Telecom.

The transaction excludes fixed and mobile operator Wind Hellas in Greece, which was bought separately by a group of creditors in Q4 2010. Furthermore, Orascom sold its stake in Tunisia based Tunisiana Telecom in the same period to Qatar Telecom for approximately $1.2bn.

With the deal, VimpelCom now operates in 20 countries, though the company declared its intent to spin-off Orascom assets in Egypt and North Korea, and Wind Italy's Wind International Services, an international voice and IP transit network.

Corporate restructuring will divide operations into five key business units:

  • Europe and North America (including Italy and Canada)
  • Russia
  • Ukraine
  • CIS (including Kazakhstan and Uzbekistan)
  • Africa and Asia (including Algeria, Vietnam and Pakistan)

Analysis
With this move VimpelCom has significantly increased its global reach, expanding its reach further into Europe with the acquisition of Wind Italy. VimpelCom is now the second largest ISP in the country, with over 1.8m broadband subscribers in Q4 2010, after incumbent telco Telecom Italia with 7.2m. Wind Italy also operates an IPTV service, but the bulk of its revenue comes from its mobile services.

The combined mobile subscriber base of the merged assets is over 180m. In terms of subscribers, this puts the carrier as the sixth largest in the world. Undoubtedly the agreement has scope to bring various synergies for the parties, in terms of both experience and economies of scale. Many of the countries in which Orascom operates have either recently launched or are looking to roll out 3G networks, a process which VimpelCom has already been through in Russia. Given the continuous lowering of smartphone prices spurring consumer demand worldwide, there is a potentially lucrative source of income for the group which can now be steered by an experienced management team. Clearly, this puts both companies in a position to benefit.

The deal was not, however, as smooth as it would have liked. Telenor, who before the agreement owned a considerable share in VimpelCom, filed for arbitration proceedings shortly after the initial announcement in Q4 2010 under the claim that the merger would significantly reduce its share in the company. It has since released a statement expressing its commitment to VimpelCom, however the case regarding its pre-emptive rights goes on. Altimo, the telecoms arm of Russia-based Alfa Group, which has had previous disputes with Telenor, did not file any legal proceedings. Given it owns a larger share and is subject to the same level of stock dilution, the question is raised as to whether Telenor filed its case to stall the merger as opposed to having solely stock-based concerns.

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