MOSCOW -- Russia's OAO Vimpel Communications offered to buy Ukrainian wireless carrier Kyivstar for $5 billion, but the deal is likely to be held up over a long-running conflict between VimpelCom's main shareholders.
Analysts see the offer, which would make VimpelCom the largest mobile-phone company in the former Soviet Union, as generous and benefiting both VimpelCom and Kyivstar in the long run. But that is assuming the parties can get around the bad blood that exists between between VimpelCom's main shareholders -- Russia's Alfa Group and Norway's Telenor ASA.
Telenor has a 56% stake in Kyivstar and isn't keen to give up control, while Alfa has chafed at holding a minority position in the Ukrainian company. For Telenor, the proposed merger would mean losing control over Kyivstar, which contributes 16% of Telenor's earnings before interest, taxes, depreciation and amortization and is its fastest-growing foreign venture.
Telenor and Alfa, which are partners in VimpelCom and Kyivstar as well as in Russian fixed-line operator Golden Telecom Inc., had a falling out early last year over VimpelCom's desire to enter the burgeoning Ukrainian mobile-phone market.
Spokesman Dag Melgaard said Telenor isn't prepared to discuss the deal until its conflict with Alfa is resolved. "Frankly speaking . . . the climate for talks isn't a very favorable one," Mr. Melgaard said.
Alexei Reznikovich, head of Alfa's telecom unit, welcomed the deal as "in the interest of all shareholders of VimpelCom."
News of the offer initially sent VimpelCom's New York Stock Exchange-listed American depositary shares up 3.5%, but the stock fell back amid doubts about the deal. At 4 p.m. in composite trading, the shares were down 34 cents at $44.40.
VimpelCom Chief Executive Alexander Izosimov said that now that the merger plan has turned into an open discussion, he hopes to get support from minority shareholders. Such a large interested-party transaction will need approval of a majority of all shareholders, he said.
Mr. Izosimov said he is prepared to wait no more than six months for shareholders to decide because the Ukrainian market is fast reaching saturation.
The partnership tension arose over mobile-phone strategy for Ukraine. Alfa and VimpelCom's managements were eager to stop VimpelCom's shares from underperforming those of larger rival OAO Mobile TeleSystems because of their lack of Ukrainian exposure. Telenor, however, wasn't as concerned, being able to reap benefits from Ukraine's growth and consolidate its stake in Kyivstar on its balance sheet.
Over Telenor's objections, VimpelCom late last year bought URS, Ukraine's fourth-largest operator, for $231 million. Telenor challenged the deal in court and has tried to delay further investment by blocking approval of VimpelCom's budget by the board.
Under VimpelCom's plan, Telenor would raise its stake in VimpelCom to 36.1% from 26.6%, and Alfa, to 36.1% from 32.9%, meaning Telenor would have neither control of the merged company nor the ability to consolidate its earnings on its balance sheet. That prospect sent Telenor's share price down 2.5% to 67.25 Norwegian kroner ($9.89) yesterday in Oslo trading.
"Everyone knows that Telenor can't take anything less than a majority in the merged company; we've known that from the start," said Barry Shumaker, an analyst at FIM Securities, adding that the offer is "some tactic in a bigger chess game."
(END) Dow Jones Newswires