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. Last Updated: 07/27/2016

End Seen Soon for Telenor Dispute

The Kremlin is giving its blessing to a deal that could resolve a festering dispute between Alfa Group's telecoms arm, Altimo, and Norway's Telenor, a source inside Alfa Group familiar with the negotiations said Wednesday.

The deal would see the two firms merge their assets across a range of telecom firms in Russia and Eastern Europe and create a regional telecom empire.

In return for giving its approval for the merger, the Kremlin is likely to require Alfa Group to sell its stake in TNK-BP to a state-owned company -- at the price and time it is told to do so -- the source said.

Kremlin spokespeople were not immediately available for comment Wednesday evening.

The wrangling between Altimo and Telenor has played out in the boardroom of mobile operator VimpelCom, in which both firms hold large minority stakes. In 2005, Altimo expanded VimpelCom into Ukraine, where it posed a competitive threat to Telenor-controlled operator Kyivstar, sparking hostilities.

Analysts have often said VimpelCom is being stifled by the bad blood in the boardroom. Telenor owns 30 percent of the company, and Altimo owns 44 percent.

"In such a situation, when there is a conflict between major investors inside the board, the company cannot operate, and they cannot effectively reach decisions," said Konstantin Chernyshev, telecoms analyst at UralSib. "A resolution would be a global driver for this company."

Kirill Babayev, Altimo's vice president for public relations, did not confirm that a deal would be reached but said Wednesday that his company was "interested in reaching an agreement with Telenor on all the disputed matters."

Telenor vice president for communications Dag Melgaard did not rule out that a settlement with Altimo would be reached, but stressed that the aim had to be a split of business interests. "We would be happy to resolve the dispute ... but at the end there must be a separation between us," he said by telephone late Wednesday.

He said Telenor was still involved in arbitration lawsuits against Altimo in Geneva and New York, and added, "Altimo cannot be trusted, because they have been signing agreements and walking away from them."

But the Alfa source said the deal would see Altimo and Telenor pool their major telecom assets, including their stakes in Kyivstar, VimpelCom, Internet and fixed-line operator Golden Telecom and MegaFon, Russia's third-largest mobile phone operator. This would create a regional giant spanning most of the former Soviet Union under the umbrella of Altimo, and ultimately Alfa Group. The company would hold an IPO soon afterward, the source said.

Alfa Group head Mikhail Fridman has often stated that a top strategic goal of his was to create a telecom giant spanning Eastern Europe and the former Soviet Union.

The merger would end the Telenor-Altimo competition on the Ukrainian market that set off their dispute.

Together with billionaires Viktor Vekselberg and Len Blavatnik, Fridman's Alfa Group owns 50 percent of TNK-BP, a joint venture with Britain's BP. TNK-BP in June agreed to sell its majority stake in the huge Kovykta gas field in eastern Siberia to Gazprom after months of state pressure as the Kremlin seeks to increase its control of strategic sectors of the economy.

Mobile telecoms, however, is not considered a strategic sector. At a February meeting of the Russian Union of Industrialists and Entrepreneurs, President Vladimir Putin urged big businesses to diversify away from oil and gas and focus more on high-tech and value-added products, and he pledged to help Russian firms expand into foreign markets.

The comments were widely interpreted as a signal to some of the country's most powerful oligarchs to leave the leading role in strategic industries to the state.

Gazprom has offered to buy Fridman, Vekselberg and Blavatnik out of TNK-BP. The three billionaires are committed to staying in the company until around the end of this year under their 2003 partnership deal with BP.

Another source familiar with the Alfa-Telenor talks confirmed that a deal would be concluded this week. He said a statement about it had been drafted last week but that it was held up because legal proceedings had not been finalized.

"Of course we can't expect that [a resolution] will go through without some political guidance," said Chernyshev of UralSib. "When the Kremlin allows it, the decision could be made fast" as it would allow swift approval from state watchdogs such as the Federal Anti-Monopoly Service, he said. He added, however, that Telenor officials told him in May that no resolution deal with Altimo would be reached this year.

Under an earlier proposal, the two firms would have broken ties through a swap of Telenor's 30 percent stake in VimpelCom for Altimo's 25 percent stake in MegaFon, the Alfa Group source said. This proposal fell through because the MegaFon stake was seen as far less valuable.

The second source said while an agreement between Altimo and Telenor would be logical for both sides, a deal involving Altimo taking a stake in Telenor was unlikely to happen. He said the Norwegian government, which owns a controlling stake in Telenor, would not agree to Altimo stepping in as a major shareholder. But other scenarios, including asset swaps, were possible, the source said.