Alfa, Telenor settle in $23 billion merger; Survey: Profits down, sales inching up; Deutsche Bank opens subsidiary in Ukraine; British condom maker expands into Ukraine.
Alfa, Telenor settle in $23 billion merger
(Reuters) Norway’s Telenor and Russian partner Alfa Group announced on Oct. 5 that they have agreed to merge their Russian and Ukrainian holdings into a New-York listed mobile operator worth over $23 billion, ending one of the longest ever Russian corporate wars.
The end to the row, which was seen as a major threat to foreign investment in Russia, and which could have seen Telenor lose its stake in Russia’s No. 2 mobile operator in payment of a $1.7 billion fine, sent Telenor’s stock surging 15 percent. The deal followed calls by Russian Prime Minister Vladimir Putin to attract more international investment, and a meeting between Putin and Telenor Chief Executive Jon Fredrik Baksaas last week. The deal will see Vimpelcom, worth around $18.4 billion, merge with Ukraine-based, unlisted Kyivstar, which analysts said was valued at $5.2 billion.
“Financially this is a good deal for Telenor. One could have imagined that they were under pressure to accept a worse deal. On the downside this means that Telenor will never be able to consolidate Kyivstar earnings into its accounts,” said Martin Hoff from Arctic Securities in Oslo.
The half-decade-long battle between Telenor and its powerful partner, the oil-to-telecoms Moscow-based Alfa Group, led by billionaire Mikhail Fridman, has been a black cloud hanging over Russia’s investment climate. Telenor had faced the potential selloff of its stake in Vimpelcom to pay the $1.7 billion fine from a Siberian court over the joint venture’s expansion into Ukraine. The case was brought by Farimex, an obscure shareholder that Telenor had suspected was acting on behalf of Alfa, but which Alfa denied.
Investors feared Russian asset values would be destroyed if a Western investor, part owned by a European state, were stripped of a prime asset by a provincial court, although analysts had long predicted a corporate divorce, with Alfa getting Vimpelcom and Telenor acquiring Kyivstar.
Telenor said the two sides would suspend their legal battle and move ahead with the deal, which will create the biggest operator in emerging Europe, with 85 million clients. The deal bears rough similarities to Alfa’s peace deal with BP, its partner in a Russian oil venture, where the British major took a reduced management role though their peace deal, although its stake in the joint venture remained the same.
Telenor currently holds 30 percent in Vimpelcom, while Alfa has 44 percent of voting stock. Telenor majority owns Kyivstar, and had been reluctant to part with control of the key asset. Alfa is a minority shareholder in Kyivstar.
Alfa’s telecoms unit said on Oct. 5 that Telenor would get 35.42 percent of voting shares in the new company, Vimpelcom Ltd, while Alfa would get 43.89 percent. The free float will amount to 20.69 percent and the combined firm could be listed in New York in April 2010.
“It is good news for Vimpelcom because it gets 22 million Kyivstar clients, a very efficient company, which even in crisis is cash-positive,” said Konstantin Chernyshov from Moscow-based Uralsib brokerage.
Survey: Profits down, sales inching up
The profitability and sales revenues of companies continue to weaken during this year’s economic recession, according to a recent survey of 77 major Ukrainian and foreign companies conducted by Ernst & Young and made public on Oct. 7.
This, the fourth Ernst & Young survey gauging the impact of the economic crisis on Ukrainian companies, was conducted Sept. 10-28 with the support of the European Business Association. It found that the five major problems which companies have faced since the beginning of the crisis remain hryvnia devaluation, reduction in sales, delayed payments by partners/clients, lower demand for products/services, and reducing expenses.
However, the priorities of these issues have shifted. In September 2009, 82 percent of respondents ranked hryvnia devaluation as their most pressing problem, followed by reduction of sales. The importance of downsizing fell by one-third since the last survey and is now rated at its lowest level since we began the survey.
Compared to a survey done during the third quarter of 2008, fresh results point to an improvement in sales volumes in the second quarter of 2009. The survey shows that over 50 percent of respondents had quarter-on-quarter sales growth during this period. And a rise in production capacity was reported by 27 percent of companies. Although not a large increase, the majority of companies increased production capacity by 5-10 percent.
“This trend may indicate early signs of a slow recovery by companies that are either getting used to doing business in the new economic conditions or are finding a more permanent improvement in their business,” said Alexei Kredisov, Country Managing Partner of Ernst & Young.
“However, this slight improvement which we have spotted is taking place on the background of the dramatic fall that the Ukrainian economy experienced. At the moment, it is difficult to make any projections, but if there is no further economic turbulence in the coming months, sales will likely continue a slow growth trend,” Kredisov added.
Deutsche Bank opens subsidiary in Ukraine
German banking giant Deutsche Bank announced early this month that it had officially opened a new bank subsidiary in Ukraine after receiving banking licenses from authorities.
The new Kyiv-based bank, officially called Deutsche Bank DBU, is expected to strengthen the group’s presence in Central and Eastern Europe. In a statement, Deutsche Bank said the Ukrainian subsidiary will target multinational corporations in addition to small and mid-cap companies from Germany and Western Europe, as well as corporate and institutional clients in Central and Eastern Europe. The focus of the new subsidiary’s business operations will be cash management, trade finance and foreign exchange management. Investment banking activities are scheduled to be expanded over the years to come.
The subsidiary will be headed by 39-year old Konstantin Seryogin, who headed Deutsche Bank’s Ukrainian representative office. The new subsidiary is being launched with 20 staff members and equity capital of roughly 22 million euro. Plans envision that staff will be increased to 50 by 2012.
British condom maker expands into Ukraine
Durex condoms and Scholl footcare products maker SSL announced on Oct. 2 that it had completed an acquisition of a Ukraine-based condom producer for 20.6 million euro.
The London-based group’s expansion into Ukraine was completed through the acquisition of Cyprus-registered Gainbridge Investments, previously owned by CCD Estate. Gainbridge was described as a holding company which has invested primarily in companies engaged in the packaging and distribution of condoms and medical products in Ukraine. SSL said the acquisition gives them ownership over the market leading condom brands in the Ukraine, including Contex.
“This is a further step in our expansion into the CIS and Eastern Europe; we remain encouraged and excited about the opportunities that these markets represent,” said Garry Watts, chief executive of SSL.
SSL has also recently expanded into Russia, where it purchased a company called Beleggingsmaatschappij Lemore BV, a leading packager and distributor of condoms in Russia and other CIS countries.
