Vimpelcom, Etisalat M&A ambitions under pressure

Two key emerging markets telecoms deals worth a combined $18.6 billion were hanging in the balance on Friday as weekend deadlines loomed for both. Abu Dhabi's Etisalat, the Gulf's No 2 telecoms group, will decide on Saturday whether to proceed with its $12 billion offer for a controlling stake in Kuwait's Zain and may walk away if transaction papers go unsigned.
Vimpelcom, Russia's second-biggest mobile company, will on Sunday discuss a revised offer for control of Egyptian tycoon Naguib Sawiris' assets, Orascom Telecom and Wind, two people familiar with the matter told Reuters. Both deals highlight the risks in emerging markets telecoms that have derailed Bharti Airtel's acquisition of South-Africa's MTN and a previous attempt by the Kharafi group to sell shares in Zain.
Such deals are attractive because they give access to high-growth emerging markets as competition intensifies at home, and boosted global deal-making last year. According to Thomson Reuters data, the proportion of telecom deals with an emerging markets buyer or seller rose to a record $118 billion, or 67 percent of a global telecom M&A business worth $176 billion, in 2010.
"Emerging market acquisitions are the last unambiguous avenue of growth for telcos," said Tim Daniels, an analyst at London's Olivetree Securities. Norwegian operator Telenor, a major shareholder in Vimpelcom, was set to oppose the deal with Sawiris even if it means renewed conflict with its Russian partner in Vimpelcom, a source said. Telenor rejected Vimpelcom's original $6.6 billion proposal last month, which would see it and Altimo, the telecoms business of Russian billionaire Mikhail Fridman, lose influence on the company's board.
Telenor Chief Executive Jon Fredrik Baksaas said last week he remains sceptical about the merits of Vimpelcom's offer due to economic and strategic concerns. "Unless there is a meaningful price reduction agreed with Sawiris, the deal doesn't stand much chance. I used to think it was 50/50, but now I think the deal stands only a 30 percent chance of success," said a telecoms banker, speaking on condition of anonymity.
Investors have questioned the $6.6 billion tag because of uncertainty over the ownership of Orascom's lucrative Algerian unit Djezzy, which the Algerian government wants to nationalise. Etisalat in September offered to buy 46 percent of Zain for 1.7 dinars per share, or around $12 billion. The offer was made to one of Zain's major shareholders, the Kharafi Group, a Kuwaiti family conglomerate.