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. Last Updated: 07/27/2016

Telenor Steps Up Its Battle for VimpelCom

OSLO -- Norway's Telenor stepped up its battle for control of Russia's No. 2 mobile phone group VimpelCom on Monday, spending $745 million for 3.3 percent of voting stock to boost its stake to 29.9 percent.

Telenor has been locked in legal and boardroom battles over strategy with Altimo, which has a 42.4 percent stake in VimpelCom, including over the makeup of its board.

"Telenor believes this transaction will increase the likelihood of three or more of its nominees to [be elected to] the board of directors of VimpelCom," Telenor said in a statement ahead of VimpelCom's June 29 shareholders meeting.

Previously, analysts said Telenor appeared to be on the back foot in its conflicts with Altimo, which extend to its Ukrainian joint venture, Kyivstar.

Telenor spent $745 million to amend its total return equity swap agreement with ING Bank and purchase 7.67 million VimpelCom American depositary receipts, or ADRs, at $97.15 each.

"It's natural they want to use their swaps ahead of the assembly," said Espen Torgersen, analyst at Carnegie brokers.

"This will have a very small effect on Telenor's consolidated [earnings before interest and taxes]."

DnB NOR analyst Frank Maade said the move was Telenor's response to Altimo's purchases of VimpelCom shares in March.

Altimo, the telecoms arm of billionaire investor Mikhail Fridman's Alfa Group, has a history of taking minority stakes in telecoms firms and applying pressure on majority owners, often through the courts, to maximize the value of its investments.

Telenor maintains that as long as Altimo does not secure a majority, VimpelCom's shareholder agreement guarantees that Telenor can nominate five of VimpelCom's nine board members.

But if Altimo's stake in VimpelCom exceeds 44 percent, it will be able to nominate four executive board members directly.

Below that threshold, it can propose three executives and one independent director.

Telenor said that through its direct ownership of shares and ADRs as well as through swap agreements, it had economic exposure to 33.8 percent of VimpelCom's common stock.

Asked whether Telenor would consider buying more VimpelCom shares, spokesman Dag Melgaard said: "If and when we are allowed to; at the moment, existing Russian law prevents us from owning more than 30 percent voting stock without calling a tender for all shares."

Altimo had more than 30 percent of voting stock when the law was introduced, so it can raise its stake to just below 50 percent without having to offer to buy out other shareholders.

Melgaard said Telenor was "in no rush" to resolve its arguments with Altimo and reiterated that the climate for continued partnership between the groups was poor, barring an unexpected change of tack by the Russians.

"The aim is for a divorce one way or another. That means ending the partnership with Alfa, which has broken agreements and launched attacks," he said.

He said that despite numerous media reports of Alfa's attempts to end the row through a potential share swap agreement, the Russian side so far had not presented any "concrete proposals" to Telenor.