Telenor’s Worst Nightmare
Published: June 30, 2009 (Issue # 1487)
Telenor, the Norwegian telecoms giant, is caught in a dispute with Alfa Group, one of Russia’s 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, Russia’s 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, Ukraine’s 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 VimpelCom’s 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 VimpelCom’s 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 Telenor’s 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, Telenor’s 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 Telenor’s shares and that the parties were in the process of being notified.Pages: