Alfa Wants to Realign Assets - The Wall Street Journal

After Pact With Telenor, Altimo Unit Floats Idea to Merge Other Stakes

 

Last month, Russia's Alfa Group ended five years of bitter legal battles with Norway's Telenor ASA with a deal to merge their telecom holdings in Russia and Ukraine. Now, the Russian company is setting its sights on another potential megadeal for its other telecom assets.

 

Alexei Reznikovich, chief executive of Alfa's telecoms unit, Altimo, said in an interview that the group would like to combine its minority stakes in Russian mobile operator OAO Megafon and Turkey's Turkcell AS into a single company. Sweden's TeliaSonera AB, now a shareholder in both Megafon and Turkcell, would get a minority stake alongside Alfa and other shareholders, he said.

 

"This is definitely the next thing we need to work on," he said, noting the group hasn't held any formal talks on the issue.

 

The deal with Telenor covers only about half of Altimo's $20 billion in telecoms assets, leaving Megafon and Turkcell, Mr. Reznikovich said. He said a combination of Megafon, which is the No. 3 player in Russia, and Turkcell, with operations in Turkey, Ukraine and other countries in the region, would create a company that could be worth about $30 billion, and as much as $50 billion when international markets recover.

Telia owns stakes in both groups, though it is fighting legal battles over some of its holding in Turkcell.

 

The apparent simplicity of Mr. Reznikovich's idea for Megafon and Turkcell belies the knot of interests that would have to be untangled for it to happen, however. Much of Alfa's stake in NYSE-listed Turkcell has been the subject of years of litigation with Turkey's Cukurova Group, as well as Telia. Megafon's other shareholders, meanwhile, have different visions than Alfa, which holds a 25% stake.

 

"The business logic should prevail, but when it will prevail I don't know," Mr. Reznikovich said.

 

Alfa, a group controlled by billionaire Mikhail Fridman that spans banking, oil, retail and telecoms, has for years prospered from complicated situations and rivalries. The group has never shied from conflict, as in the case of BP PLC, which agreed to renegotiate the terms of their oil joint venture last year after a wave of regulatory pressure forced the BP-backed CEO to flee Russia.

 

Under the agreement to end their five-year legal battle, Alfa and Telenor will merge their holdings in Russia and Ukraine into a Netherlands-headquartered company to be called Vimpelcom Ltd. that is to be one of the largest mobile-telephone companies in the emerging world.

Neither side will have control over the new company, which will be listed in the U.S.

 

The deal, be completed early next year, would be the first major result for a strategy Mr. Fridman outlined four years ago of converting Alfa's scattered telecoms holdings into a major operator.

 

Telia said the group hasn't discussed any combination with Alfa and remains focused on attaining control in its holdings, although Russian law would likely block a foreign company from controlling Megafon.

 

Alfa, meanwhile, was forced to reduce its Turkcell stake by a U.S. court order in the battle with Telenor, but Mr. Reznikovich said he hopes the group can buy it back.

 

Alfa is also fighting with Cukurova over part of its stake, with court rulings expected next year.