Russia's VimpelCom Ltd and Weather Investments, the investment company headed by Egyptian telecom mogul Naguib Sawiris, said they are merging to form what would become the world's fifth largest mobile telecommunication service provider in a deal valued at over $6.5 billion.

VimpelCom signed a merger contract with Weather Investments S.p.A, under which the Russian firm will get 51.7 percent of Orascom Telecom, an operator in Africa, Asia and Canada, and 100 percent of Wind Telecomunicazioni S.p.A., an Italian provider.

The deal will expand VimpelCom to 20 countries, more than doubling the total number of subscribers to 174 million, though many are in poor nations where monthly cellphone payments are small. Post-transaction net debt would be up to $24 billion, the companies said in a joint statement.

The transaction, like so many others here, appeared to be aided by the Russian government, which has encouraged companies that formed and flourished after the breakup of the Soviet Union to expand into other markets.

VimpelCom’s chief executive, Alexander Izosimov, suggested that the deal would change the character of what had been a company with a limited geographic focus. The business in the former Soviet states was highly profitable, but had slowed in recent years as nearly everybody in the former bloc who wanted a cellphone had one, even in remote areas.

"This combination creates a top tier global telecoms company with strong platforms across Europe, Asia and Africa," VimpelCom's chairman Jo Lunder said in a statement.

But the talks dragged out. The main obstacle, analysts said, seemed to be a risk that the Algerian government would nationalize one of Orascom’s crown jewels, the Algerian operator Djezzy. The Algerian government had frozen its Djezzy accounts over a tax dispute.

As the Algerian unit provided about 40 percent of the total revenue of Orascom, it became impossible to price the deal without knowing the operator’s fate, Sergei Y. Libin, a telecommunications analyst at the Metropol brokerage firm in Moscow, said in an interview Monday.

The issue may be eased with Russian President Dmitry Medvedev's visit to the North African nation this week, but the Cairo-based Mideast investment bank Beltone Financial said in a research note Monday that it does not believe Algeria will "allow this deal to proceed without it obtaining a share of the financial benefit."

VimpelCom, which is jointly owned by Russia's Alfa Group and Norway's Telenor, had a net debt of almost $4 billion by the end of the first half of 2010. Wind's net debt stood at about $10.6 billion.

VimpelCom said that upon issuance of the new shares, Telenor will hold 31.7 percent of the economic rights in the company while Alfa's Altimo would control 31.4 percent. Minority shareholders would hold 17 percent of the economic rights.

After the deal, VimpelCom will extend its board to 11 members to include two Weather officials. Telenor and Altimo will appoint three of them as before. Sawiris is also supposed to become a member of the board of directors.

Sources:
      Gazeta.ru
      The New York Times
      The Associated Press

Max Yakuba