MOSCOW/LONDON: Vimpelcom is set to unveil a $6.5 billion deal to buy control of Egypt’s Orascom Telecom and Italy’s Wind, sources said on Monday, a move that could create the world’s fifth-largest mobile operator.
Sources close to the deal said an announcement could be made as early as Monday, but analysts said the plan may yet crumble due to uncertainty over whether Orascom’s Algerian unit Djezzy, its biggest single source of revenue, would be included.
Algiers, which had rejected Orascom’s plans to sell Djezzy to South Africa’s MTN, is trying to nationalize the unit and is expected to make an offer in the coming months.
"We continue to see the complexity of the deal as an obstacle to its completion. It is not clear to us why Algeria would halt the process of buying out Orascom Telecom Algeria," Credit Suisse analyst Richard Barker wrote in a note.
If finalized, the deal would help Orascom’s holding company lighten its debt burden and become a player in the one of world’s top five telecoms firms, a goal its Egyptian tycoon owner, Naguib Sawiris, has talked about since 2006.
The acquisition would mark a major expansion into Asia, North Africa and the developed European market, for Vimplecom, which is part controlled by Russian billionaire Mikhail Fridman.
Vimpelcom’s chief executive Alexander Izosimov told Reuters last month that now was a good time for the emerging markets specialist to expand into developed markets — which could include Italy — to target data services growth.
He added the entire telecoms sector was undervalued, making acquisitions "more relevant than ever.”
Sources familiar with the issue told Reuters the planned deal was worth a potential $6.5 billion, comprising cash and 20 percent of Vimpelcom’s shares.
Trading in Orascom was suspended on Monday after speculation of the tie-up drove its shares up 4.8 percent on Sunday, and traders said they expected more gains.
Orascom’s London-listed global depositary receipts (GDRs) were up 7.1 percent by 0922 GMT.
Smoothing the way
Algerian law gives the government the right to block any sale of Djezzy to Vimplecom but analysts hope Russian President Dmitry Medvedev’s visit to Algeria on Oct. 6 could help ensure the lucrative business is not stripped out after a deal is done.
"President Medvedev’s visit to Algeria could be an opportunity to smooth some hurdles to a deal and we cannot rule out that an announcement may come this week," Barker said.
Medvedev’s impending visit has not dissuaded Algeria’s government from questioning Djezzy’s chief executive as recently as last week over allegations that the company violated foreign exchange rules. Algiers has also hit Djezzy with bills for hundreds of millions in back taxes.
And previous attempts at high-level political persuasion have not worked.
Egyptian President Hosni Mubarak has personally lobbied his Algerian counterpart Abdelaziz Bouteflika on the issue of Djezzy ownership, even making an impromptu trip to Algeria to offer his condolences when Bouteflika’s brother died.
According to a source close to Orascom Telecom, South African President Jacob Zuma, on a visit to Algiers, pressed Bouteflika to allow MTN to buy the unit, also to no avail.
Sources said, however, that the Russians may have more sway.
"There’s more of a commercial dimension to relations between Russia and Algeria than to relations between South Africa and Algeria," a person familiar with the matter said.
Vimpelcom is jointly owned by Norway’s Telenor and Russia’s Alfa Group — a business empire of billionaire Mikhail Fridman which also comprises Russia’s No.3 oil firm TNK-BP and top grocery chain X5 Retail Group.
Telenor’s shares were down 2 percent at 90.9 Norwegian crowns on Monday on concerns that a Vimpelcom purchase of the Sawiris assets will weaken dividend payouts.
Sawiris has also recently been pushing interest in Eastern Europe — he said in July Weather was considering a move into Poland and Serbia, while Orascom last month bid for Kosovo’s state-owned telecom company.
Orascom already operates in markets as diverse as Pakistan and North Korea. –Additional reporting by Alexander Dziadosz in Cairo, Christian Lowe in Algiers and Anastasia Teterevleva in Moscow
