Against a backdrop of widespread confusion — it seems a little exaggerated to use the term anarchy at this stage — there appears to besome progress to a short-term solution in Egypt. Mubarak is stepping down.
Now that even Naguib Sawiris is bearish on the prospect that his company Orascom Telecom will end up merging
Norway’s Telenor is one of the controlling shareholders in Vimpelcom, and could now be sending signals that the complex soap opera of Vimpelcom’s merger with Orascom is ending.
TELNY (quote) officially supports VIP (quote) as it tries to build out beyond Russia and Ukraine, but warns that the company’s management has to come up with a clear plan for how it would integrate such an acquisition into its existing business.
Djezzy is arguably the crown jewel that ORSTF had to offer a merger partner, and if it is lost — or needs to be repurchased from Algeria at a significant premium — VIP shareholders may finally be on the edge of balking.
The real question is why they even let it get this far in the first place. There is plenty of smoke and uncertainty around this stock now, even though it was once very public and open with investors.
In any event, ORSTF shares are drifting to 19-month lows in Cairo, while in ADR format the stock is effectively bid-only at this point. If the VIP deal collapses, this company has already lost its Greek operation. Losing Djezzy as well may be difficult to recover from.
According to government ministers, Algeria will pick a bank in January to pave the way to take over Orascom’s local wireless service, but will not consult Vimpelcom in the process.
The process of nationalizing Djezzy, which is often considered the crown jewel of Orascom Telecom (ORSTF, quote), should drag on through the first half of next year.
Algeria claims that it has the right of first refusal on any M&A bids on companies based within its borders, and that Djezzy — which generates 40% of all ORSTF revenue — owes it $230 million in back taxes.
Thanks to this news, it now looks more likely that the $6.6 billion deal could collapse. Previously, VIP management held out hope that Algeria might nationalize Djezzy and then resell it to them for up to $2.5 billion over and above the cost of acquiring ORSTF.
However, now that the company is being shut out of the process, there seems to be little point in hoping for a quick resolution to a deal that many traders hated from the beginning.
If this unravels, VIP becomes very attractive again.
Both of the major Russian cellular names — VIP and MBT — need catalysts in order to head much higher from here. When and if those catalysts emerge, these stocks could move.
MBT reports on November 18.
Top Russian brokerage Troika has come out with new targets on both stocks: MBT reduced to $30.30 as the competitive environment tightens. VIP cut to $14.70 if the ORSTF deal happens, but back up at $21.15 if the deal fails.
Interestingly, Troika thinks either carrier could stand to outperform its Western counterparts in the long run by avoiding any kind of flat-rate data pricing plan now — in order to avoid giving early adaptors a sense that they can just grab all the bandwidth they can — and by pacing their infrastructure build to meet demand.
The stakes for Egyptian mogul Naguib Sawiris to sell most of his telecom holdings to Vimpelcom just got a lot higher as he loses control of his Greek wireless network.
Wind Hellas is now the property of the holders of $1.7 billion in senior debt who have agreed to pay another $600 million in a bonds-for-equity swap.
When Sawiris bought the Greek company in 2007, he paid the equivalent of $4.7 billion for it.
The loss leaves Sawiris’ telecom empire shrunk to its Italian subsidiary, the core Orascom Telecom (ORSTF, quote) holdings that Vimpelcom (VIP, quote) has offered $6.6 billion to buy, and scattered Greek and Belgian assets.
If VIP goes through with its now-clouded acquisition plans, ORSTF will be a shell of its former stature.
Sawiris is personally worth $2.5 billion and still owns significant hotel and construction assets — the latter traded in the United States as ORSDF (quote).
In an interesting twist, Norway-based global phone company Telenor (TELNY, quote) — one of the controlling shareholders of VIP — is one of the new owners of Wind Hellas.
Given TELNY’s reluctance to get involved in potential regulatory conflicts of interest where ORSTF’s frontier markets holdings are at stake, the decision to absorb Sawiris’ Greek assets appears to indicate that the problem may not be the assets but the way the prospective VIP deal has been structured.