Large-Scale Mergers on VimpelCom Ltd's Radar as Grand Plans Outlined for New Group 

VimpelCom Ltd. may not yet be fully formed, but its owners have already been outlining ambitious plans for continued expansion. The company is to be formed by the merger of CIS integrated operator VimpelCom and Ukrainian mobile operator Kyivstar by the pair’s joint owners, Telenor and Alfa Holding, which will create a subscriber base across Russia, Ukraine and other CIS countries of some 88 million (see Russia: 5 October 2009: Telenor and Alfa End Five-Year Battle with Merger of Russia-Ukraine Assets). Speaking at the Mobile World Congress in Barcelona (Spain), VimpelCom Ltd's chief executive, Alexander Izosimov, is quoted by Reuters as saying that:

• the new company will look to merge with similar-sized companies.
• it is interested in groups that are number one or two in their respective markets.

Meanwhile, Telenor's head of Central and Eastern Europe, Jan Edvard Thygesen, is quoted by Dow Jones at the same event as suggesting that:

• the new company will look to expand into the emerging markets of Asia and Africa.
• its main markets have not yet been decided upon.

Izosimov expressed his confidence that such a strategy of high-profile mergers is manageable, noting that the structure of VimpelCom Ltd is “very conducive” to such an approach. He also indicated that the previous wranglings between Alfa and Telenor, which, somewhat notoriously, dragged out for five years and across various international courts, are well behind them. In his new capacity as chief executive of VimpelCom Ltd, he has spent a lot of time talking with both parties, noting, perhaps inevitably, that he considers that they have “genuinely made peace and genuinely want to push this company to the next step of development”.

While he pointed out that the Ukrainian presidential election has slightly delayed the process of gaining regulatory approval in the country for the creation of VimpelCom Ltd., he does not see it as a huge problem. Both he and Thygesen have expressed confidence that the 95% VimpelCom minority shareholder approval, required by 15 April 2010, will be granted (see Russia: 10 February 2010: VimpelCom Ltd. Confident of Shareholder Approval for VimpelCom-Kyivstar Share Swap).

Outlook and Implications

• Clues from Past Behaviour of Telenor and VimpelCom: While Thygesen has stated that no concrete plans are in place regarding possible merger targets or potential markets of entry, it is reasonable to assert that the relevant bodies will have already discussed likely targets. While it is difficult to speculate with any degree of accuracy as to which assets are catching the eye of VimpelCom Ltd., there are a few clues available. Telenor itself has been expanding its Asian portfolio with units in Thailand, Malaysia, Bangladesh and Pakistan—the latter two in particular retaining plenty of room for mobile growth, with penetration still comfortably at double-digit levels. Telenor has also recently moved into India, the huge population of which provides ample growth opportunity, even though the market is crowded with parent groups eager for a slice of this high-growth cake. VimpelCom, for its part, has looked towards the emerging markets of South-East Asia, having acquired assets in the markets of Laos, Cambodia and Vietnam over the last 18 months. Therefore, if VimpelCom Ltd. is looking East, there are a number of markets in which it already has a presence.

• Europe Unlikely, Although LTE Developments May Be of Interest: It seems unlikely that the markets of Europe will be of interest to VimpelCom Ltd., as they are generally already well-developed and offer limited room for continued mobile growth. However, the prospect of LTE and mobile internet roll-outs, as well as fixed broadband growth opportunities, may yet attract interest to such groups as Tele2 or TeliaSonera, which would also meet the criterion of being among the leading players in their respective markets.

• Activity in Sub-Saharan Africa: Sub-Saharan Africa seems a likelier target for growth. VimpelCom Ltd. will presumably keep an eye on the ongoing discussions between Bharti and Zain for the latter’s sub-Saharan assets and may show some interest should such discussions break down (see Sub-Saharan Africa: 15 February 2010: Bharti in Talks with Zain to Acquire Sub-Saharan African Assets). Meanwhile, the breakdown last year of talks between Bharti and South Africa’s MTN indicates that the latter, with a subscriber base of over 100 million, could also be a potential target as it would be of appropriate size and is apparently not averse to acquisition interest (see Sub-Saharan Africa: 1 October 2009: MTN and Bharti Airtel End Discussions over Potential Merger). However, all such potential targets remain purely in the realm of the speculative or at best the realm of the educated guess, as no specific targets have been mentioned by the great and good of VimpelCom Ltd.