VimpelCom expanding into Italy … and beyond?

Rumor has it that VimpelCom is talking to an Egyptian phone company to buy into subscriber networks stretching from Namibia to North Korea. We hope it is just a rumor.

VimpelCom (VIP, quote) is reportedly “considering” paying around $6.5 billion for a controlling stake in Orascom Telecom (ORSTF, quote), which supports wireless in Egypt and a number of frontier markets, and full ownership of Wind, which is the No. 3 carrier in Italy.

Both ORSTF and Wind are owned by tycoon Naguib Sawiris. If the deal happens, Sawiris could end up with about 20% of VIP, potentially destabilizing the already-fragile partner structure that drove VIP to restructure its stock in the first place.

This is the problem: There is no talk about protecting minority shareholders. (This is one of those perils of emerging markets investing.)

The big players in VIP would keep what they think are fair stakes in the enlarged business, Sawiris would move in and everyone else would see their positions squeezed.

Right now, Orascom is turning a $2.2 billion operating profit on $5 billion in revenue a year. Wind is generating $2.9 billion a year in operating profit. These are solid companies operating in some very underpenetrated markets, but they are also swimming in about $15 billion in debt.

We still love VIP. But we hope this deal does not happen.

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