Old tricks, open war

Telenor: Telenor’s Russian peace agreement has come to an abrupt end. The Norwegian telecom operator, already struggling in India, faces another foreign disaster after its partner in Vimpelcom resurrected old tricks to force through a revised $6 billion-plus purchase of Wind Telecom from Egyptian tycoon Naguib Sawiris. Telenor is right that the terms look poor for Vimpelcom, but its chances of thwarting the deal are slim.

Under the new deal, Vimpelcom will pay Sawiris $1.5 billion in cash and issue him with shares equivalent to a 20 percent economic interest and 30.6 per cent of the voting rights in the enlarged group. In return, Vimpelcom gets 100 per cent of Italy’s Wind and 51.7 per cent of Orascom Telecom. Telenor’s voting rights will be diluted from 36 per cent to 25 per cent.

Telenor has been opposed to the purchase for a long time. But Vimpelcom has circumvented the Norwegian group's opposition by declaring the deal to be a related party transaction. It was able to do so following a disclosure that an affiliate of Alfa Group, Vimpelcom's largest shareholder, also owns 0.6 per cent of the shares in Wind Telecom’s listed subsidiary Orascom.

This trick allowed Vimpelcom to remove Telenor's pre-emptive right to buy any new shares that are issued — effectively stopping it from blocking the deal.

The tactic raises uncomfortable echoes of a dispute between 2005 and 2009 that almost cost Telenor its entire investment in Vimpelcom, now worth almost $8 billion.

That arose when an obscure investor called Farimex tried to sue the Norwegian group in a Siberian court over assets in Ukraine. Alfa denied Telenor’s claim that the investor was acting on its behalf. The latest twist means Vimpelcom only needs a simple majority of shareholders to approve the Wind deal. As a result, Telenor looks destined to return to the courts to protect its investment. The truce agreed last year which turned Vimpelcom into a company headquartered in Amsterdam, states that any arbitration must be dealt with in London, according to a person familiar with the situation. But given that the majority of Vimpelcom’s assets are in Russia - and the Russian government has a big say over the business - Telenor’s investment looks vulnerable.