VimpelCom has formally announced a $6.6 billion takeover of Weather Investments, the holding company controlling Orascom Telecom and Wind.When the deal closes it will mark the final transformation of VimpelCom from Russia’s second largest mobile operator to the sixth largest mobile operator in the world. For Naguib Sawiris, the boss of Weather Investments, a closed deal is a ringing endorsement of his portfolio investment strategy.
Another blockbuster telecoms deal by emerging market players
Following Bharti’s takeover of Zain’s African operations, this is now the second blockbuster telecoms deal in 2010, largely driven by emerging market players.
The newly expanded VimpelCom will have operations in a total of 20 countries in four continents. In Russia the press is already hailing this as the biggest international deal by a Russian company. With approximately 174 million customers, VimpelCom is now the sixth largest mobile operator in the world after China Mobile, Vodafone, Telefonica/O2/Movistar, America Movil, and Bharti.
A VimpelCom–Weather tie-up will create a mix of developed and emerging market assets. This will include Weather’s assets in Algeria, Bangladesh, Pakistan, and Tunisia, plus Wind in Italy and the indirect equity stake in Globalive Wireless in Canada. VimpelCom has confirmed that Orascom Telecom in Egypt, Wind Hellas in Greece, and Koryolink in North Korea will not be included in the final deal.
While this represents an impressive global diversity of assets, and certainly a balanced business risk profile, the revenue mix is still skewed towards just two countries. Pro forma revenues for 2009 show that the existing operations in Russia will represent 35% and Wind Italy will represent 34% of the combined group.
Vimpelcom has found an answer to its expansion ambitions
VimpelCom is finally achieving the sort of lofty ambitions its owners always had for it. Outmaneuvered at home by MTS, VimpelCom’s only option for dominance was always to go abroad. To its credit, it has done that reasonably well, creating a sprawling telecoms empire in Russia’s “near abroad”. But that was about all it could do. The festering duel between Telenor and Altimo, the holding company controlled by Russian Mikhail Fridman, held it back.
With that duel finally over, the fusion of VimpelCom with Ukraine’s Kyvistar and the transformation of VimpelCom into a quasi-Western company, the stage was set for further expansion abroad. In pushing for the deal, VimpelCom touted a potential $2.5 billion in savings from synergies between VimpelCom and Weather’s operations. Telenor will now have a 31.7% economic stake in the enlarged VimpelCom while Altimo will have 29.3%.
Politics will still be around VimpelCom. The group will rely on an upcoming visit of the Russian President to Algeria to try to diffuse concerns over Djezzy, Orascom’s unit in Algeria, which has been besieged by niggling political interference. Likewise, it is not surprising that North Korea has been kept out of the deal as sanctions on the country could easily compromise VimpelCom’s Western-leaning outlook.
Sawiris, the consummate portfolio investor
For Naguib Sawiris, the disposal of Weather to VimpelCom is a canny move. In setting up Weather Investments in 2005, the Sawiris family opted to transform their fledging Orascom Telecom empire into an investment vehicle. Through this one deal, Naguib has cashed in his family’s investment in Weather, found a potential solution to the Algeria problem, and retained some assets that could form the nucleus of another telecoms portfolio. Weather will get $1.8 billion in cash, a 20% economic interest, and an 18.5% voting interest in the expanded VimpelCom. Weather is 72.65% owned by the Sawiris family.
What the Sawiris family go on to do with the remnants of Weather’s telecoms empire will be interesting in the coming years. Like Zain, another big investment portfolio that has been broken up, this is further evidence that telecoms may no longer be the golden cash cow.
In Egypt, the Sawiris family’s home market and base, retaining a stake in Orascom Telecom has a much wider socio-political meaning than a mere economic interest. That perhaps explains the recent disagreements with France Telecom over the asset. North Korea is a new venture and Wind Hellas in Greece has deeper problems that need to be sorted out. Together, these assets, plus some non-core ones in Italy, give the Sawiris family an independent telecoms portfolio.