Vimpelcom Enters Ukraine With $231 Million Takeover

MOSCOW, Russia -- Russia's No.2 mobile phone firm, Vimpelcom, entered Ukraine's fast-growing market by buying a company for $231.3 million despite opposition from Norway's Telenor, one of Vimpelcom's key shareholders.

Vimpelcom also said in a statement on Friday that Sweden's Ericsson (ERICb.ST: Quote, Profile, Research) had won a $200 million contract to supply equipment to the newly-bought firm, Ukrainian RadioSystems (URS).

Vimpelcom's top shareholders, Russia's Alfa Group with 32.9 percent of shares, and Telenor, with 26.6 percent, have for months been at odds over Vimpelcom's expansion in Ukraine.

Although a shareholder meeting approved the purchase of URS, Telenor opposed the deal, which has been under discussion since August 2004, at board meetings, saying the price was too high.

"As CEO, I could not have failed to fulfil a shareholders meeting's decision," Alexander Izosimov told a news conference. "There are no other such markets in Europe like Ukraine."

With a population of 47 million, Ukraine's mobile services penetration is 50 percent compared with 80 percent in Russia.

There are two major mobile services firms in Ukraine. Mobile TeleSystems, Vimpelcom's key rival in Russia, has been operating there for several years and has the biggest market share of any company. The second largest company is Telenor-controlled Kyivstar, where Alfa is a minority shareholder.

The board has never approved the deal with the required majority because Telenor's representatives voted against it.

Telenor said the purchase of URS, a company which controls less than 1 percent of the market, would require major investments and put Vimpelcom's own future at risk.

Telenor promised to consider taking legal action against the acquisition but added it would not sell its stake in Vimpelcom as it had once said it might.

"I hope that Telenor will never go ahead ... because that will be an affront to the will of other shareholders," Izosimov said.

Izosimov said Vimpelcom wanted to have at least 15 percent of the Ukrainian market within 18 months to two years.

He promised that the company would spend no more than $100 to $110 per subscriber in Ukraine, the same amount it spends in Russia.

But Morgan Stanley said it was less optimistic about the amount of spending needed to expand in Ukraine and the amount of time required to win a 15 percent market share.

"We believe the execution on the Ukrainian expansion will be challenging for Vimpelcom, given an already high penetration level and well-established competition," it said in a note.

"Potentially disruptive behaviour from Telenor on the ... board ... could hinder the implementation of the business plan. As a result, there is a possibility of a further escalation of conflict between Telenor and Alfa, leading to an increased risk premium for the stock".

However, Morgan Stanley left its 'underweight' rating on Vimpelcom and a target price of $39 unchanged.

Izosimov said that under the deal with Ericsson, the Swedish company would buy URS's old equipment provided by Chinese firm Huawei for $52.6 million in cash and supply its own equipment worth $200 million.

The URS deal follows an earlier $300 million deal between Vimpelcom and Ericsson in Russia.

Source: Reuters