Telecom Giants Merge To Create Global Telecom Monster

The Russian telecom giant, VimpelCom, announce that they have signed an agreement to merge with Italian Weather Investments S.p.A.  in order to create the world’s fifth largest mobile telecommunications company. The cash consideration of US$1.8 billion will be financed from existing cash balances and new debt facilities, VimpelCom says in a press release.

“Total incremental debt to be raised after taking account of waivers of existing debt is expected to be in the range of approximately US$2.0 to 2.5 billion. This will bring post transaction net debt up to US$24 billion.”

VimpelCom Ltd.

VimpelCom is owned 33% by the Norwegian telecom giant Telenor who currently is the worlds sixth largest mobile operator. Telenor, in turn, owns the Swedish branch of Vodaphone – the worlds largest mobile company. The merger with Weather, who also is a leading global telecom player, will create a vast  conglomerate of telecoms with the transparency of a very large dark pool.

The cash consideration of US$1.8 billion will be financed from existing cash balances and new debt facilities, Vimpelcom writes in a press release.In addition, the Transaction will trigger certain change of control provisions of existing debt in the Weather group which might require the refinancing of some of these debt instruments.
“VimpelCom and Weather expect to launch the required financing process including solicitation of consents where appropriate in October/November. The companies have received highly confident letters from financing banks for the planned refinancing.”
Total incremental debt to be raised after taking account of waivers of existing debt is expected to be in the range of approximately US$2.0 to 2.5 billion. This will bring post transaction net debt up to US$24 billion, according to the press release.
“VimpelCom’s financial position will remain strong following closing of the Transaction. VimpelCom’s pro forma net debt to LTM EBITDA ratio as at 30 June, 2010 is up to 2.5 times post transaction and is anticipated to decrease rapidly over the following years,” the company says.

On closing of the Transaction , VimpelCom will become the fifth largest mobile platform in the world by subscribers, with:
  • operations in a total of 20 countries in Europe, Asia, Africa and North America with approximately 850 million people living within the coverage area
  • pro forma net operating revenues of US$21.5 billion for the year ended December 31, 2009
  • pro forma EBITDA of US$9.5 billion and an EBITDA margin of approx. 44% for 2009.


A Transformational Transaction

The terms of the signed agreement were unanimously approved on 3 October 2010 by both the VimpelCom Supervisory Board and the Weather Board of Directors.
Jo Lunder, the Chairman of VimpelCom, comments: “VimpelCom’s Supervisory Board has fully endorsed VimpelCom’s expansion strategy and the proposed transaction with Weather. This combination creates a top tier global telecoms company with strong platforms across Europe, Asia and Africa. The Board is confident that this transaction will create significant long-term value for all our shareholders.”
Naguib Sawiris, the Chairman of Weather, comments: “This landmark transaction is a true reflection of the high quality of our Orascom Telecom and Wind Italy assets and of the significant value that we have created over the years for our shareholders. We share a common vision with our new partners at VimpelCom of the exciting prospects of our new, enlarged and diversified telecoms platform. Moreover, I am confident that our minority shareholders in Orascom Telecom will benefit from the synergies created by the combination of the two entities, especially in the area of procurement, and by the overall strengthening and de-risking of the Orascom Telecom balance sheet. I am looking forward to being fully involved in the new group and to joining VimpelCom’s Supervisory Board.”
Alexander Izosimov, Chief Executive Officer of VimpelCom, adds: “Today’s announcement marks a transformational transaction for VimpelCom. It offers our shareholders exposure to attractive growth markets in both Asia and Africa and the opportunity to diversify further our revenue base in terms of geography, currency and market characteristics. It also positions VimpelCom to take full advantage of the significant opportunities that we see in the fast-growing mobile data services market and to leverage the experience that already exists in this area within Wind Italy and other parts of the Weather group. We are looking forward to working with our new partners in Weather and their impressive management expertise in both developed and developing markets and to unlocking the full synergy potential of the proposed combination.”

The Wild Bunch

However, this merger involves several other major global telecom companies.
Amongst the things they have in common, are the ability to create controversy and trouble.
Here’s a little summary of the involved parties:
Beeline is the trademark of the largest Russian telecommunication operator, VimpelCom., whose  headquarters are located in Moscow.
The company was founded in 1995, and Motorola acquired 49% of the company in 1996. URS obtained a GSM-900 license in 1997, but Motorola backed off the venture the same year due to an alleged government favoritism to another mobile operator.
The Korean Daewoo picked up the ownership, didn’t do much to grow the business and sold it to a Ukrainian financial group in 2003 for $230 million.
The deal has been surrounded by a controversy involving two major shareholders of VimpelCom: the Russian Alfa Group and Telenor, forcing the incumbent telco in Norway to  appeal a $1.7 billion court ruling against company.
Telenor offers a full range of telecommunication services in Norway, including mobile and fixed telephony as well as Internet access and content. Telenor still dominates the market place in Norway. However, competition has at times been intense in the mobile market and ADSL market, but Telenor remains the largest company in both sectors.

Telenor holds a prominent position in the Scandinavian Broadband and TV market, both with regard to the number of subscribers and to the extent of coverage. The TV distribution is branded Canal Digital.

In June 2007 Telenor announced that it would withdraw from the Norwegian Internet Exchange (NIX). It would allow other internet service providers to connect to Telenor’s own exchange point, but wants to be able to charge content providers, like NRK or Schibsted, for prioritized access to their network. The Norwegian Post and Telecommunications Authority stated they would look at the legality of this move,[12] but concluded that the withdrawal from NIX would not negatively affect the Norwegian Internet infrastructure.
After Muhammad Yunus was awarded the Nobel Peace Prize in 2006, he claimed during his visit in Norway to receive the prize that Grameen Bank had a gentlemen’s agreement with Telenor where Telenor was to sell part of GrameenPhone to the bank.[citation needed] Telenor was not interested in fulfilling this agreement, arguing it was not juridically binding.
Telenor’s subsidiary Grameenphone was fined multiple times and later sued because they participated in illegal VOIP operations. VOIP operations went against the BTRC’s (Bangladesh Telecommunication Regulatory Commission ) rules and as a result Grameenphone’s offices were also raided in the process.
A Danish TV documentary has revealed miserable working conditions and environmental violations at companies in Bangladesh that act as suppliers to GrameenPhone. Employees were shown working with hazardous chemicals and heavy metals virtually without protection.
Workers were as young as 13 years, a clear violation of child labour laws.
In the United States, Vodafone owns 45% of Verizon Wireless, the country’s largest mobile carrier after their merger with Alltel. The percentage of the customer base, and revenues of Verizon Wireless that Vodafone consolidates is slightly lower, since some Verizon Wireless subsidiaries have minority investors.
This relationship has been quite profitable for Vodafone, but there have historically been several problems.
Vodafone made a bid for the entire  AT&T Wireless when that company was for sale in 2004, but lost in the competition against Cingular Wireless.
Verizon has announced that its 4G data network will be LTE, which is considered part of the GSM path and not the CDMA2000 path Verizon has been using; it has been suggested this is to appease Vodafone, which uses GSM on its own networks.
Weather Investments S.p.A (Weather), is a privately held telecommunications investment company 97% controlled by Egyptian businessman Naguib Sawiris.
His outspoken, flamboyant and charismatic traits have made him an icon in the telecom business.
In 2008 Mr. Sawiris made history by launching the first mobile operator in North Korea.
Since joining Orascom, the family business, in 1979, Naguib Sawiris has continuously contributed to the growth and diversification of the company into what it is today – one of Egypt’s largest and most diversified conglomerates.
Now, this is really big business…
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