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Vimpelcom, Etisalat M&A ambitions under pressure

Vimpelcom considering revised Sawiris offer on Sunday.

January 14, 2011 3:57 by

Two key emerging markets telecoms deals worth a combined $18.6 billion were hanging in the balance on Friday as weekend deadlines loomed for both.

Abu Dhabi’s Etisalat , the Gulf’s No. 2 telecoms group, will decide on Saturday whether to proceed with its $12 billion 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 are attractive because they give access to high-growth emerging markets as competition intensifies at home, and boosted global deal-making last year.

According to Thomson Reuters data, the proportion of telecom deals with an emerging markets buyer or seller rose to a record $118 billion, or 67 percent of a global telecom M&A business worth $176 billion, 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, a source said.

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

Telenor Chief Executive Jon Fredrik Baksaas said last week he remains sceptical about the merits of Vimpelcom’s offer due to economic and strategic concerns.

“Unless there is a meaningful price reduction agreed with Sawiris, the deal doesn’t stand much chance. I used to think it was 50/50, but now I think the deal stands only a 30 percent chance of success,” said a telecoms banker, speaking on condition of anonymity.

Investors have questioned the $6.6 billion tag because of uncertainty over the ownership of Orascom’s lucrative Algerian unit Djezzy, which the Algerian government wants to nationalise.


Etisalat in September offered to buy 46 percent of Zain for 1.7 dinars per share, or around $12 billion. 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 $7.89 billion, or 1.72 dinars per share.

Analysts said a deal with Etisalat made better sense strategically than a tie-up with Cukurova however, 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.

(Additional reporting by Eman Goma; editing by David Hulmes)

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