Telenor blasts troubled Vimpelcom-Weather deal

OSLO/MOSCOW (Reuters) - Vimpelcom's $6.6 billion bid for telecoms assets owned by Weather Investments was hanging by a thread after Norwegian shareholder Telenor said on Monday it would not back the move.

Telenor's opposition to the deal -- which would see Vimpelcom taking control of Egypt's Orascom Telecom and all of Italy's Wind -- means all three independent Vimpelcom directors must back the long-troubled transaction.

The deal, which has been backed by the Kremlin, would make Russia's No.2 mobile phone operator the world's fifth-largest. Shares in Telenor and Vimpelcom rose on the news, signaling continued market doubts over the merits of the Weather deal.

Analysts said the move undermines the long-term stability of Vimpelcom by once again pitting Telenor against its other major shareholder Altimo -- the telecoms arm of Russia's Alfa Group run by billionaire Mikhail Fridman.

The two owners fought protracted board and courtroom battles over strategy for years before a 2009 resolution.

Telenor spokesman Dag Melgaard said the deal did not make "strategic or financial sense" for shareholders.

"We are signaling our position, knowing there is no way that we can block the deal (without support)," he told Reuters.

Telenor has 36 percent of voting rights in Vimpelcom and three of the nine Vimpelcom board members. The deal needs six of nine votes, meaning three Altimo board members and three independents must back it to neutralize Telenor's opposition.

DEAD DEAL?

The acquisition also requires amendment of a shareholder agreement between Telenor and Alfa.

"I think the deal is dead," said First Securities analyst Ole Joergen Roed, adding that co-operation between Vimpelcom's two main owners now looked unlikely.

"This is positive in the short term for Telenor by reducing the chances of the transaction going through, but in the long term it may create conflict among Vimpelcom shareholders."

Vimpelcom in October announced the proposed acquisition of Weather from Egyptian tycoon Naguib Sawiris, its first major attempt at international expansion since the 2009 deal which secured Alfa's and Telenor's reconciliation.

The acquisition has met a series of obstacles, most notably the Algerian government's plans to nationalize Orascom's most lucrative asset, Djezzy, despite a trip to Algiers by Russian President Dmitry Medvedev.

Altimo and Orascom declined to comment.

BOARD VOTE

Amsterdam-headquartered Vimpelcom is due to hold a two-day meeting from Tuesday to vote on final approval of the deal.

Vimpelcom said its board "will consider the interests of all of the company's shareholders in reaching its decision."

Telenor's shares were up 1.1 percent by 1542 GMT, while the overall Oslo bourse was up 0.7 percent and the STXE 600 telecom index was up 0.7 percent. Shares in Orascom were off 1.2 percent while Vimpelcom rose 2.1 percent in New York trade.

Analysts said the rise in Vimpelcom/Telenor shares could be explained by market jitters surrounding the wisdom of the deal, which will see Vimpelcom saddled with some $24 billion of debt.

The Vimpelcom deal would help Orascom pay back $3 billion in debt over the next three years and was initially seen as a way to help it reach a deal with Algerian authorities over its top revenue earner Djezzy, which Algiers says owes it back tax.

Analysts say that if the deal fails, Sawiris may consider disposing of more assets such as a stake in a Tunisian operator.

VTB Capital analyst Viktor Klimovich said Telenor's move could be part of a plan to get better terms from Weather.

"Vimpelcom's major shareholders are interested in this deal in principle, so there could be more negotiation. In the short term, though, this is an obstacle to the deal," he said.

Telenor has in the past opposed Vimpelcom's expansion in Ukraine, which led to a prolonged shareholder dispute, but Klimovich said another damaging battle was not on the cards yet.

"Both parties have an interest in not turning this situation into a conflict -- they will be constructive," he added.

($1=31.10 Rouble)

(Additional reporting by John Bowker in Moscow, Alexander Dziadosz in Cairo and Wojciech Moskwa in Oslo; Editing by John Bowker, Jon Loades-Carter and David Hulmes)