Alfa and Telenor clash over Ukraine

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Alfa Group, Russia's leading financial and industrial conglomerate, has crossed swords with Telenor, Norway's largest telecoms group, over the expansion of Vimpelcom, Russia's second-largest mobile telephone operator, into the Ukraine.

Telenor owns 26.6 per cent of Vimpelcom while Alfa has 33 per cent. Both have called on other minority shareholders to back their positions at an extraordinary general meeting. Alfa says Telenor, which owns 56.5 per cent in Kyivstar, the leading Ukrainian operator, is preventing Vimpelcom's expansion into the market. In a letter to other minority stakeholders, Alfa claims Telenor has a conflict of interest and is acting to the disadvantage of other Vimpelcom shareholders.

Alfa says the best way for Vimpelcom to enter Ukraine would be through a merger with Kyivstar, in which Alfa has a 43.5 per cent stake. However, that would mean Telenor's majority position in Kyivstar would be diluted to a minority stake, preventing it from consolidating Kyivstar's results. Kyivstar is one of the fastest growing parts of Telenor's business and accounts for 10-15 per cent of the group's revenues.

Jon Fredrik Baksaas, chief executive of Telenor, said: “Kyivstar is doing well in the Ukrainian market and is already enjoying the synergies with Telenor.” He said Telenor did not see any need for a merger between Kyivstar and Vimpelcom and had never been approached with any concrete proposals. He said the “circumstances would have to be right to consider such a merger”.

Alexei Reznikovich, the chief executive of Alfa Telecom, the telecom arm of Alfa Group, said Telenor had repeatedly rejected in principle Vimpelcom's idea to merge with Kyivstar.

“[Telenor] have consistently demanded a majority stake if the groups were to merge,” he said.

Telenor has opposed Vimpelcom's proposal to buy Ukraine Radio Systems (URS) as a platform for expansion into Ukraine. Telenor says URS is a new entrant in the Ukrainian market and with last year's revenues of $3.6m and 48,000 subscribers it is not worth the $200m that Vimpelcom was proposing to pay.

Alexander Izosimov, Vimpelcom chief executive says: “There is no doubt that if we enter the Ukrainian market we could pursue a very aggressive price policy which would be bad for Kyivstar.”

He said while the dispute had not affected the company's operations yet, it had brought uncertainty into its future strategy. “As a chief executive of this company I need to have a sense of direction: either to expand aggressively into new markets, or to concentrate on extracting value from our existing market. Both models are viable, but we need to know which one to pursue.”

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