A nasty row has broken out between telecoms partners Alfa Telecom from Russia and Sweden’s Telenor and may end in divorce as they vie for a piece of the rapidly growing Ukrainian telecoms market.
Alfa Telecom is part of the Alfa Group, the co-owner of Russia’s biggest mobile phone operator, VimpelCom, owning 33% against Telenor’s 27%. Their roles are reversed in their partnership in Kyivstar, Ukraine’s second largest mobile phone company, of which Alfa owns 43.5% and Telenor 56% of the voting stock.
Merger hopes
That is the problem. Alfa has been pushing for a merger between VimpelCom and Kyivstar for years, while Telenor has blocked the idea, arguing this would dilute its own stake in the Ukrainian operator to less than half. The shareholders are caught in a conflict of interests as their corporate strategies clash with VimpelCom’s narrower interests.
“We welcome Telenor’s presence in Ukraine, but the shareholders in VimpelCom should care about what is good for the company rather than their corporate interests,” says Kirill Babaev, vice-president for external communications at Alfa Telecom. “VimpelCom is already present in all of Russia’s regions, therefore – like all Russia’s mobile phone companies – we are pursuing opportunities in the fast-growing CIS market. This is part of VimpelCom’s common strategy, approved by all the shareholders.”
Frustrated with Telenor’s intransigence, Alfa has gone on the attack in the past few months. In an attempt to break the stalemate, in April Alfa Telecom offered a reported $200m for Ukraine’s fourth largest mobile operator, Ukrainian Radio Systems, which operates under the WellCom brand. If the deal goes through, Alfa will end up in competition with itself, as WellCom and Kyivstar are direct competitors.
Buying Ukrainian Radio Systems is an odd move, but Telenor was up in arms after a Russian court was asked to change VimpelCom’s articles of association in April, allowing approval of acquisitions to be made by a simple majority. The change would remove Telenor’s ability to block a merger if Alfa is able to build up its stake in VimpelCom to 46% and so take five of VimpelCom’s nine board seats at this summer’s annual general meeting.
In a classic example of Russian corporate legal disputes, a 25-year old “shareholder”, Victor Makarenko, took a complaint to a small regional court after acquiring two shares in VimpelCom only two days before filing the suit. Telenor was furious.
“It is clear that VimpelCom is under an escalating attack,” said Telenor spokesman Dag Melgaard. “A decision has been made by Telenor to commit all possible resources to repel this illegitimate act.”
The Ukrainian affair is only the latest in a string of scuffles involving Alfa in the telecoms sector. It has been locked in a battle for representation on the board of Russia’s third largest mobile phone company, Megafon, which is 44% owned by Swedish-Finnish TeliaSonera but believed to have links to Russia’s telecoms minister Leonid Reiman. And last month, Alfa announced that it was bidding for Turkey’s Turkcell.
Meanwhile, confusion reigns over Alfa’s motives in Ukraine. As well as speculating that the company is trying to force a merger between its Russian and Ukrainian telecoms assets, some analysts believe that it is trying to remove a potential competitor to Kyivstar.
Others say that Alfa is trying to sell its stake in VimpelCom to Telenor and applying pressure to hike up the price. Whatever the motive, Telenor is not happy playing hardball with its partner.
Counter attack
“We now see ourselves inside a cycle that follows a familiar pattern of corporate conflicts in Russia today,” Mr Melgaard said in a statement. “But just as there are certain methodologies for performing such attacks, there are expert means to counter them. We will use all possible leverage, including direct appeals to top government and political authorities, to end this reprehensible abuse.”
The row, which began as a tiff, could turn into a split as both sides’ backs end up against the wall. Telenor has threatened to exit VimpelCom if Alfa does not back down. However, analysts say that Alfa is not a strategic telecoms investor and, having already made a very handsome return on its investment, no-one would be surprised if it sold out. Talks are ongoing and despite the rhetoric, Telenor has hinted that it is willing to buy Alfa out.
“We are discussing all the variants. The first question to settle is if VimpelCom is free to pursue its interests in Ukraine. If this question cannot be resolved then we will negotiate a solution that is acceptable to all the holders of stakes in VimpelCom,” says Mr Babaev.
Alfa’s purchase option for Ukrainian Radio Systems was due to expire at the end of April. It has called a VimpelCom extraordinary general meeting in May to discuss its Ukrainian plans.
