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. Last Updated: 07/27/2016

Alfa Buys $247M Vimpelcom Stake

Vimpelcom got its long-awaited strategic investor Wednesday as the powerful Alfa Group agreed to pay $247 million for a blocking stake in both Vimpelcom and Vimpelcom-R, the cellular operator's regional arm.

Vimpelcom announced the deal along with its first-quarter 2001 financials, which showed the company beat expectations and returned to profitability for the first time since the end of 1998.

The company posted a $5.1 million profit, compared with losses of $11.8 million in the same quarter last year. EBITDA rose to $27.9 million, from $11.2 million in 2000.

Alfa Group subsidiary Eko Telecom Ltd., acquires a 25 plus one stake in the country's No. 2 wireless operator for $130 million and invests $117 million in Vimpelcom-R, which translates into between 25 plus one percent and 42 percent of shares, depending on whether Telenor or Vimpelcom exercise their option to invest $117 million more into Vimpelcom-R, the company said.

Vimpelcom-R is worth $55 million, according to Vimpelcom.

Vimpelcom, traded on the New York Stock Exchange since 1996, saw its share price soar 12 percent to $16.95 by 2 p.m on Wall Street.

Vimpelcom said that with Alfa comes a "strong, well-recognized Russian partner with significant resources and an established record" of doing business in Russia, as well as fresh funds for its GSM operators and regional expansion.

The regions are a growing battlefield for operators, and Vimpelcom has been viewed as the lagger behind Mobile TeleSystems and St. Petersburg holding Telecominvest.

While Vimpelcom's GSM license area — 70 percent of the country, or 100 million people — is the largest among cellular operators, regional expansion has been hampered by a cash shortage, as well as the all-important backing of a strong domestic partner.

Political weight and connections are considered by analysts as no less important than money, particularly when the Communications Ministry has irked the investment community with its unclear policies on license and frequency allocation.

Since reports of negotiations with Alfa surfaced in January, observers have cheered the addition of a domestic partner and fresh cash to Vimpelcom. Though- in the days leading up to the announcement, they grew cautious, saying their optimism depended on the terms of the deal and how diluted minority shareholders' stakes would be.

In the end, minority shareholders will see their stakes diluted by some 13 percent, though analysts said that the advantages of new financing outweigh that.

All new issued shares will go to Alfa, while Norwegian company Telenor buys up existing shares to retain its 25 percent stake.

Vimpelcom had been expected to give up a majority of Vimpelcom-R, a fully owned subsidiary set up in 1998 to build its network in the regions.

Though retaining a majority in Vimpelcom-R, Alfa gets control of the board of directors and the right to appoint a CEO. The candidate list for Vimpelcom's board includes Alfa Group chairman Mikhail Fridman and head of Alfa Eko Telecom Stanislav Shekshnya.

The Vimpelcom transaction is Alfa's second aggressive move into the telecoms sector this year, after Alfa Bank bought a stake in Golden Telecom in April for $110 million.

Vimpelcom founder and president Dmitry Zimin, 68, gets $26.9 million from Alfa for part of his shares. He also gets part of the $24.7 million Telenor paid to maintain its blocking stake. As a result, Zimin's stake dips down to 10.4 percent. He remains president, but transfers the position of general director to current CEO Jo Lunder.

"It's certainly a fazing-out of the business of Zimin in favor of Telenor and Alfa," said United Financial Group telecoms analyst Ari Krel.

In a conference call, Lunder said the reasons for returning to profitability were mostly on the expenses side, including lower subscriber acquisition costs.