Merger of VimpelCom and VimpelCom-Region
28 Aug 2003
Moscow, and New York (August 28, 2003) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced that its Board of Directors has recommended to its shareholders to approve the merger of VimpelCom and VimpelCom-Region ("VimpelCom-R") and the related issuance of new VimpelCom common shares in exchange for the 44.7% stake in its subsidiary Open Joint Stock Company "VimpelCom-Region" ("VimpelCom-R") that is currently owned by Eco Telecom Limited, a company within the Alfa Group of companies in Russia ("Alfa Group"), and by Telenor East Invest AS ("Telenor"). These issues will be submitted for shareholder approval at an Extraordinary General Meeting of Shareholders of VimpelCom to be held in Moscow on October 24, 2003.
The original VimpelCom-R shareholders agreement, signed by VimpelCom, Alfa Group, Telenor and VimpelCom-R on May 30, 2001, and amended on May 15, 2002, envisaged that a merger of VimpelCom and VimpelCom-R would automatically be triggered by December 2007 if certain operating parameters and other conditions were met. It also provided for an acceleration of the merger process upon the agreement of the VimpelCom-R shareholders. Against this background, VimpelCom is now requesting shareholder approval for the issuance of 10,948,821 new common shares (the equivalent of 14,598,428 ADSs) to Alfa Group and Telenor in exchange for their shareholdings in VimpelCom-R in connection with the statutory merger of VimpelCom-R into VimpelCom. On a fully diluted basis, this represents a 21.4% economic dilution for VimpelCom shareholders. The proposed exchange of shares reflects a valuation ratio of 0.91:1 between VimpelCom-R and the rest of VimpelCom (predominantly VimpelCom's Moscow business), implying that 33.6% of VimpelCom's market capitalization is attributable to its 55.3% stake in VimpelCom-R. Commenting upon today's announcement, Jo Lunder, Chief Executive Officer of VimpelCom, said, "When we entered into the agreements relating to VimpelCom-R in 2001, the risks that we faced in the regions were significant. It was our objective to hedge our risk by sourcing external equity capital from Alfa Group and Telenor to develop the regions. Today, the risk profile is much improved. Our regional operations are developing well and are now making a positive contribution to net income. As of today, our regional subscriber base is approximately 3.7 million, and VimpelCom-R reported for the second quarter of 2003 a positive net income, EBITDA of $33.2 million and an EBITDA margin of 36.2%, far ahead of our expectations. Moreover, we believe that we will achieve further significant growth in subscribers and profitability in the regions over the medium term. While the existing VimpelCom-R structure has served us well over the past two years, we now believe that there are significant advantages and benefits to be gained from simplifying the group's overall corporate and capital structure and at the same time offering all of our shareholders full exposure to the growth potential in the regions." Under the terms of the proposed merger, in exchange for their shares of VimpelCom-R, Telenor will receive 3,648,141 newly-issued VimpelCom common shares (the equivalent of 4,864,188 new ADSs) and Alfa Group will receive 7,300,680 newly-issued VimpelCom common shares (the equivalent of 9,734,240 new ADSs). Following the merger, Telenor will own approximately 26.6% and 29.9%, respectively, and Alfa Group will own approximately 32.9% and 24.5%, respectively, of the Company's total voting stock and total common stock. In anticipation of the announced merger between VimpelCom and VimpelCom-R, Alfa Group has accelerated the third tranche of its investment into VimpelCom-R in the amount of $58.52 million which was originally scheduled for November 2003. The closing of this investment was completed on August 27, 2003. The VimpelCom Board of Directors has received an opinion from UBS Limited, the Company's financial advisor, on the fairness of the financial terms of the proposed transactions, subject to assumptions and considerations therein. The merger of VimpelCom and VimpelCom-R with the resulting issuance of new shares in VimpelCom to Alfa Group and Telenor, together with certain other aspects of the proposed transactions, will be subject to approval by VimpelCom shareholders at an Extraordinary General Meeting of Shareholders to be held in Moscow on October 24, 2003. As interested parties to a number of the proposed transactions, Alfa Group and/or Telenor will not be eligible to vote on certain resolutions. In addition, the proposed transactions will be subject to various Russian regulatory approvals, including the Ministry for Anti-Monopoly Policy of the Russian Federation and the Russian Federal Commission on the Securities Markets, and satisfaction of certain other conditions precedent. The Board of Directors is recommending the transaction for approval by VimpelCom's shareholders at the forthcoming Extraordinary General Meeting of Shareholders. VimpelCom will submit a copy of the materials for the Extraordinary General Meeting of Shareholders, which describes the transaction in greater detail, to the U.S. Securities and Exchange Commission and the New York Stock Exchange. An electronic copy of the shareholder meeting materials will be available for review on VimpelCom's web site in the "SEC Filings" section. The Company's management will discuss its second quarter 2003 results and the merger proposals on a conference call on August 28, 2003 at 6:30 pm Moscow time (10:30 am EDT in New York). The call may be accessed via webcast at the following URL address http://www.vimpelcom.com. The conference call replay and the webcast will be available through September 5, 2003 and September 29, 2003, respectively. A Company presentation will be posted on VimpelCom's website http://www.vimpelcom.com.
Telenor ASA, headquartered in Oslo, Norway, is an international provider of high quality telecommunications, data and media communication services. Telenor Mobile - the mobile business area of Telenor - is one of the world's most advanced mobile holding companies with a leading position in the Norwegian market and with ownership in 12 mobile operations throughout the world. The number of mobile subscribers as of June 30, 2003 was 13.6 million (pro rata), calculated on the basis of Telenor Mobile's ownership interests in each company and 28.8 million in total for all the companies in the Telenor Mobile portfolio. Telenor is listed on the Oslo Stock Exchange (TEL) and on NASDAQ in New York (TELN). This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements relate, in part, to the consummation of the merger and related transactions which are subject to shareholder, regulatory and certain other approvals, as well as certain other conditions precedent, including the transfer of all of VimpelCom-R's licenses and permissions to VimpelCom. If any of the approvals are not obtained or any condition precedent is not met, the merger will not be consummated. The forward-looking statements relate to the Company's development and are based on management's best assessment of the Company's ability to consummate the merger and related transactions, its strategic and financial position and future market conditions and trends. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of unforeseen developments from regulatory authorities, competition, governmental regulations of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia and other factors. As a result of such risks and uncertainties, there can be no assurance that the merger will be consummated. Certain factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risks described in the Company's Annual Report on Form 20-F for the year ended December 31, 2002 and other public filings made by the Company with the United States Securities and Exchange Commission, which risk factors are incorporated herein by reference. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.
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