Vimpelcom, Etisalat M&A ambitions under pressure

Deals worth a combined $18.6bn highlight risks in emerging markets' telecoms
Vimpelcom, Etisalat M&A ambitions under pressure
The proportion of telecom deals with an emerging markets buyer or seller rose to a record $118bn, or 67 percent of a global telecom M&A business worth $176bn, in 2010
By Reuters
Sat 15 Jan 2011 05:23 PM

Two key emerging markets' telecoms deals worth a combined $18.6bn were hanging in the balance as deadlines loomed for both.

Abu Dhabi's Etisalat, the Gulf's No 2 telecoms group, was to decide on Saturday whether to proceed with its $12bn offer for a controlling stake in Kuwait's Zain and may walk away if transaction papers go unsigned.

Vimpelcom, Russia's second-biggest mobile company, will on Sunday discuss a revised offer for control of Egyptian tycoon Naguib Sawiris' assets, Orascom Telecom and Wind, two people familiar with the matter told Reuters.

Both deals highlight the risks in emerging markets' telecoms that have derailed Bharti Airtel's acquisition of South Africa's MTN and a previous attempt by the Kharafi group to sell shares in Zain.

Such deals, which are attractive because they give access to high-growth emerging markets as competition intensifies at home, boosted global deal-making last year.

According to Thomson Reuters data, the proportion of telecoms deals with an emerging markets' buyer or seller rose to a record $118bn, or 67 percent of a global telecoms M&A business worth $176bn, in 2010.

"Emerging market acquisitions are the last unambiguous avenue of growth for telcos," said Tim Daniels, an analyst at London's Olivetree Securities.

Norwegian operator Telenor, a major shareholder in Vimpelcom, was set to oppose the deal with Sawiris even if it means renewed conflict with its Russian partner in Vimpelcom, another source familiar with the situation said.

Under the revised offer, Sawiris will receive better economic terms and voting rights, but no seats on Vimpelcom's board, one of the first two people said.

The Egyptian tycoon will also shoulder some of the risk related to Djezzy, Orascom's lucrative asset that the Algerian government wants to nationalise, this person added.

Telenor rejected Vimpelcom's original $6.6bn proposal last month, which would see it and Altimo, the telecoms business of Russian billionaire Mikhail Fridman's Alfa Group, lose influence on the company's board.

Analysts covering Telenor say privately that the company will do everything it can to block a deal and that the entry of Sawiris could upset the balance of power within Vimpelcom.

Vimpelcom's structure is enshrined in a 2009 shareholders agreement with Telenor and Alfa — a compromise "peace deal" between the Russian and Norwegian groups after years of courtroom and boardroom battles over strategy.

Telenor could block a transaction if the shareholder agreement has to be changed for the deal to go through and it refuses to support the amendment.

Vimpelcom's proposal would not necessarily require a new agreement, however, assuming it was approved by an investor meeting, the person added.

Etisalat in September offered to buy 46 percent of Zain for 1.7 dinars per share, or around $12bn. The offer was made to one of Zain's major shareholders, the Kharafi Group, a Kuwaiti family conglomerate.

In October, Kharafi Group said it had enough approvals from shareholders to tender to Etisalat's bid, even though the deal is still dependent on the sale of Zain's assets in Saudi Arabia, for anti-trust reasons.

Bankers said this week the company would probably extend the deadline for its offer beyond Saturday if it was close to the required 46 percent threshold.

"Etisalat is clear, it wants a controlling stake. Without the 46 percent, a deal won't happen," a second banker said.

CNBC Arabiya this week reported a potential approach from Turkey's Cukorova Holdings, which the TV channel said was in talks to buy 29.9 percent of Zain for around $7.89bn, or 1.72 dinars per share.

Analysts said a deal with Etisalat made better sense strategically than a tie-up with Cukurova because it would deliver more synergies.

"There isn't even a proposal from Cukurova on the table and it may be hard for them to find financing," the second banker said.

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