VimpelCom Ltd. announced today that VimpelCom’s Supervisory Board gave its final approval for the proposed combination of VimpelCom and WIND TELECOM S.p.A. (“Wind Telecom”, formerly Weather Investments S.p.A.).  Six of nine directors, including all three independent directors and the three Altimo-nominated directors, voted in favor of the Transaction, with the three Telenor-nominated directors voting against the Transaction.

Following completion of the Transaction, VimpelCom will own, through Wind Telecom, 51.7% of Orascom Telecom Holding S.A.E. (“Orascom Telecom”) and 100% of WIND Telecomunicazioni S.p.A. (“WindItaly”).  The combination of VimpelCom and Wind Telecom, as previously announced on 4 October 2010, will create the world’s sixth largest mobile telecommunications carrier by subscribers with pro forma adjusted net operating revenues of US$21.3 billion and pro forma EBITDA of US$9.4 billion for the year ended 31 December 2009.

The management and the Supervisory Board continue to believe strongly in the strategic rationale of the Transaction which will create a new global telecom player with significant scale and an attractive mix of developed and emerging market assets, well-positioned to realize profitable growth.

Jo Lunder, the Chairman of VimpelCom’s Supervisory Board, commented: “VimpelCom’s Supervisory Board is pleased to approve this transaction.  This combination will create a top-tier global telecoms company and should drive significant value for all our shareholders.  While we acknowledge Telenor’s divergent view, we believe that the majority of our shareholders recognize the strategic and financial merits of this transaction.  In the end, as it should be with a public company, it will be the special general meeting of shareholders that will make the final determination.”

Alexander Izosimov, Chief Executive Officer of VimpelCom, added: “We have made substantial progress since we announced this transaction last October and we remain on track to close in the second quarter of this year.  We continue to believe that this transaction offers our shareholders exposure to attractive growth markets and the opportunity to diversify further our revenue base in terms of geography, currency and market characteristics.  It also positions VimpelCom to take full advantage of the significant opportunities that we see in the fast-growing mobile data services market.”

Transaction rationale

The combination of VimpelCom and Wind Telecom will create a new global top-tier telecom operator, which is expected to lead to substantial value creation for shareholders, both in the short and long term.  The combination is consistent with the original objectives announced by our strategic shareholders when creating VimpelCom Ltd., namely to increase the current scope of operations and scale of the business.

The enlarged company will operate in 19 countries around the world, covering a population of 838 million people, with over 173 million mobile subscribers.

VimpelCom’s revenue base will be significantly diversified. Based on 2009 pro forma revenues, the existing operations in Russia and Italy will each account for approximately 35% of the combined company.  The group will also have an attractive mix of developed and emerging market assets in Eastern Europe, Asia and Africa. In addition, the combined group will benefit from a more balanced growth profile between increasing market penetration and growing usage, in particular in mobile data services, across its portfolio, resulting in a robust and diversified cash flow and currency structure.

The Transaction is financially attractive and offers good value creation for shareholders, in particular taking into account that the equity consideration represents a relatively small proportion of the total enterprise value. The implied EV/EBITDA multiple is low compared to recent precedent transactions in the telecoms sector.  In addition, the Transaction preserves the Company’s dividend payout commitment.

Finally, there is significant potential for value creation from synergies between VimpelCom and Wind Telecom operations, with an estimated net present value of US$2.5 billion. These synergies will be primarily derived from procurement operational expenses and capital expenses.

Transaction terms

Under the new terms of the Transaction, Wind Telecom shareholders will contribute to VimpelCom their shares in Wind Telecom in exchange for consideration consisting of 325,639,827 newly-issued VimpelCom common shares, 305,000,000 newly-issued VimpelCom convertible preferred shares and US$1,495 million in cash. The newly-issued convertible preferred shares will have the same rights as the existing convertible preferred shares.  In addition, at or shortly after the closing of the Transaction, certain assets will be demerged from the Wind Telecom group and transferred back to Weather Investments II S.a.r.l., the 72.65% shareholder of Wind Telecom (“Weather II”), as further described below.

The VimpelCom common and convertible preferred shares issued to Wind Telecom shareholders at the closing of the Transaction will together represent approximately a 20.0% economic interest and a 30.6% voting interest in the enlarged VimpelCom group. Upon issuance of the new VimpelCom common and convertible preferred shares, Telenor ASA, holding through its subsidiaries Telenor Mobile Communications AS and Telenor East Invest AS (“Telenor”), and Altimo Holdings & Investments Limited, holding through its subsidiary Altimo Cooperatief U.A. (“Altimo”), will hold approximately 31.7% and 31.4% of the economic rights and 25.0% and 31.0% of the voting rights, respectively, of VimpelCom. Minority shareholders in VimpelCom will represent approximately 17.0% of the economic rights and 13.4% of the voting rights.

Algerian value sharing arrangement

Notwithstanding the Algerian Government’s ongoing measures against Orascom Telecom’s Algerian subsidiary, Orascom Telecom Algerie (“OTA”), OTA remains a strategically important asset for VimpelCom. VimpelCom is therefore interested in exploring with the Algerian Government a resolution which would allow VimpelCom to retain OTA following completion of the Transaction.

In the event that such a resolution is not possible within a reasonable time frame, VimpelCom has sought to lessen its financial exposure to the situation surrounding OTA by agreeing with Weather II an option, which can be exercised by VimpelCom at any time within six months from the closing of the Transaction, to enter into a value sharing arrangement with Weather II with respect to Orascom Telecom’s shareholding in OTA.

This value sharing arrangement provides for any financial losses or gains arising from the sale of all or part of OTA to the Algerian Government or from the eventual settlement of the disputes between OTA and the Algerian Government to be shared in certain pre-agreed proportions between VimpelCom and Weather II.  This sharing arrangement would involve cash payments to/from VimpelCom and Weather II based on certain formulae linked to an agreed implied equity value of VimpelCom’s see-through ownership of OTA under various scenarios (Wind Telecom owns 51.7% of OTH which in turn owns 96.8% of OTA). In particular, the arrangement provides significant downside protection for VimpelCom in Algeria.

Financing

Following the 4 October 2010 announcement, VimpelCom and Wind Telecom launched the required financing processes. VimpelCom has obtained commitments of up to US$6.5 billion from Russian and international banks. Of this amount, VimpelCom expects to draw down approximately US$5.0 billion to finance the cash portion of the transaction consideration and to re-finance the Orascom Telecom debt which will be due upon acquisition by VimpelCom.  Half will be raised in the form of a Russian rouble term loan and the balance via a US dollar bridge loan to be refinanced in the bond markets.

Wind Italy refinanced US$8.5 billion in November 2010 (fully ring-fenced from VimpelCom) and obtained necessary waivers from its high yield and PIK note holders.

The gross debt and net debt of the combined entity as the end of the third quarter of 2010 were US$24.8 billion and US$21.1 billion, respectively.  The gross debt will increase to approximately US$25.7 billion post transaction and net debt to approximately US$21.7 billion.  This increase is based on the impact of the Transaction consideration, the refinancing of Wind Italy, proceeds from the sale of the Tunisian operations of Orascom Telecom and various other costs.  The net debt to EBITDA ratio on this basis would be 2.3x which is expected to be reduced in the two years thereafter to a level below 2.0x.

Orascom Telecom Spin-off and Wind Italy Spin-off

Wind Telecom’s interests in the assets to be demerged principally comprise Orascom Telecom’s investments in Egypt and North Korea and Wind Italy’s Wind International Services S.p.A. subsidiary, and certain other less significant assets.  The assets owned directly by Wind Italy are contemplated to be transferred to the current Wind Telecom shareholders (“Wind Italy Spin-off”) on the closing date of the Transaction or immediately following the closing. The assets held through Orascom Telecom are contemplated to be transferred shortly after the closing date of the Transaction to the current Orascom Telecom shareholders (including Weather II) (“Orascom Telecom Spin-off”).

Both the Orascom Telecom Spin-off and the Wind Italy Spin-off are subject to a number of conditions precedent, including, in the case of the Orascom Telecom Spin-off, regulatory approval and approval at an Extraordinary General Meeting of Orascom Telecom shareholders.  If the Orascom Telecom Spin-off is not completed, an additional amount of up to US$770 million in cash will be payable by VimpelCom to Wind Telecom shareholders and the Orascom Telecom Spin-off assets will remain within the combined group.  If the Wind Italy Spin-off is not completed, an additional amount of US$100 million in cash will be payable by VimpelCom to Wind Telecom shareholders and the Wind Italy Spin-off assets will remain within the combined group.

Shareholder meeting and pre-emptive rights

The issuance of the VimpelCom common shares and convertible preferred shares in the Transaction requires the approval of a majority of shareholder votes present at the forthcoming Special General Meeting of VimpelCom shareholders (the “VimpelCom SGM”).  We understand that Telenor remains opposed to the Transaction.

On January 10, 2011, Altimo informed VimpelCom that one of its affiliates owns shares in Orascom Telecom with a market value of approximately US$27.7 million and therefore, in their view, the Transaction should be treated as a “Related M&A Transaction” under the terms of the existing Shareholders Agreement among Altimo, Telenor and the Company.

The Company has also received letters from Telenor wherein Telenor asserts that it is entitled to pre-emptive rights under the Shareholders Agreement in connection with the issuance of new shares to the Wind Telecom shareholders.  Telenor alleges that Altimo’s actions in this regard are a breach of the clause in the Shareholders Agreement requires the parties to act in good faith and in a constructive manner such as to give effect to the provisions of the Shareholders Agreement.  Telenor’s letters further assert that the Company will be actively participating in Altimo’s efforts to prevent Telenor from exercising its pre-emptive rights if the Company takes the position that no pre-emptive rights apply to the Transaction.  Telenor has stated that it will pursue all available remedies against the Company, Altimo and Wind Telecom shareholders in the event any shares are issued to the Wind Telecom shareholders without giving effect to Telenor’s claimed pre-emptive rights.

After considering the information received from Altimo and Telenor and after taking into account legal advice given to the Company and to its independent directors, the Supervisory Board of VimpelCom concluded that the Transaction should be regarded as a Related M&A Transaction.  As a Related M&A Transaction, the Transaction will not be subject to any pre-emptive rights for either Altimo or Telenor under the Shareholders Agreement upon the issuance of the new shares to the Wind Telecom shareholders.

Shareholders Agreement

Under the revised terms of the Transaction, the existing Shareholders Agreement among Altimo, Telenor and the Company will not be amended.  The Shareholders Agreement will remain in effect following the Transaction, provided that neither Altimo nor Telenor fall below a 25% voting stake in the Company as a result of a transfer of any of their respective shares.  Under the Shareholders Agreement, Telenor and Altimo will continue to have the right to designate three board members each and three board members will continue to be unaffiliated with either Altimo or Telenor.

Estimated timetable

The conditions precedent to closing of the Transaction include, among others, receipt of consents required under competition or anti-trust laws in certain jurisdictions, VimpelCom shareholder approval for the issuance of new VimpelCom common and convertible preferred shares in connection with the Transaction and completion of actions and transactions required to be completed before closing pursuant to the refinancing plan for the Transaction.

The VimpelCom SGM to authorize the issuance of new common and convertible preferred shares is scheduled to take place on March 17, 2011.  The Transaction is expected to close during the first half of 2011 following receipt of regulatory approvals.  Each of VimpelCom and Wind Telecom has the right to terminate the Transaction at any time prior to receipt of shareholder approval at the VimpelCom SGM for the issuance of the new shares to the Wind Telecom shareholders pursuant to the Transaction.

Advisors

VimpelCom has engaged UBS Investment Bank and Deutsche Bank AG to act as its financial advisors and Akin Gump Strauss Hauer & Feld LLP to act as its legal advisor.

Citigroup Global Markets Limited acted as financial advisor to the Supervisory Board of VimpelCom.

UBS Investment Bank, Deutsche Bank AG and Citigroup Global Markets Limited each provided a fairness opinion to the Supervisory Board of VimpelCom.