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Telenors Worst Nightmare

Published: June 30, 2009 (Issue # 1487)




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Telenor, the Norwegian telecoms giant, is caught in a dispute with Alfa Group, one of Russias largest holdings, over the highly lucrative mobile telephone business in Russia and Ukraine. The Norwegian state is a majority shareholder of Telenor, and Alfa is owned by Mikhail Fridman, an oligarch estimated by Forbes in 2008 to be among the 20 richest people in the world. He also has close ties to the Kremlin.

The background to this revealing story of how the power elite do business is as follows: VimpelCom, Russias second-largest mobile phone operator, is 44 percent owned by Alfa, and 29.9 percent of the voting stock 33.6 percent of actual shares is owned by Telenor. In Kyivstar, Ukraines No. 1 mobile phone operator, the situation is somewhat reversed: Telenor owns 56.5 percent, and Alfa has 43.5 percent.

In 2004, VimpelCom, keen to expand into the Ukrainian market, proposed the take over of a small company called Ukrainian Radio Systems, or URS. The deal was opposed by Telenor, which fended off the move for a year, but the purchase was approved by shareholders in 2005. The purchase price totaled $231 million after URS was unsuccessfully offered to another bidder for $100 million.

At the heart of the deal was a shareholders agreement between Telenor and Alfa that any arbitration would take place in Geneva. However, a microscopic shareholder in VimpelCom, Farimex, took Telenor to court in Siberia for loss of profits in the Ukrainian market. Farimex owns 0.002 percent of VimpelComs shares and is registered in the British Virgin Islands. The owner apparently was a businessman named Dmitry Fridman, and Alfa insisted that there was no connection to Mikhail Fridman.

Farimex said Telenor stalled VimpelComs penetration into the Ukrainian market and thus damaged growth prospects, claiming an absurd $1.7 billion for the one-year delay. Still, Farimex won its case in Omsk last year. Telenor refused to put up the money and saw its stock in VimpelCom frozen by the court. An appeal scheduled for June 10 was delayed until Sept. 30 for technical reasons.

This outcome is Telenors worst nightmare. It had hoped for a decision, any decision, and to bring the case to the Supreme Court in Moscow. Under Russian law, the court can take ownership of confiscated property after a second trial even if there is an appeal pending to the Supreme Court. So, Telenors shares in VimpelCom can now be sold on the open market before September and before any consideration by the Supreme Court. In that case, it is game over. Court marshals said on June 19 that they had approved an order to auction off Telenors shares and that the parties were in the process of being notified.

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ALL ABOUT TOWN

Tuesday, Oct. 21


The Environment, Health and Safety Committee of AmCham convenes this morning at 9 a.m. in the organizations office.


Take the opportunity to pick the brains of Dmitry V. Krivenok, the deputy director of the Economic Development Agency of the Leningrad region, and Mikhail D. Sergeev, the head of the Investment Projects Department, during the meeting with them this morning hosted by SPIBA. RSVP for the event by emailing office@spiba.ru before Oct. 17 if you wish to attend.


Improve your English at Interactive English, the British Book Centers series of lessons on vocabulary and grammar in an informal atmosphere. Starting at 6 p.m., each month draws attention to different topics in English, with the topic for this months lessons being visual arts.



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