The political turmoil engulfing Egypt for the past two weeks has jeopardised the planned merger between Orascom Telecom (OT) and Wind Italy with Vimpelcom. Vimpelcom ‘s board had approved a revised deal for Egyptian magnate Naguib Sawiris’ telecom assets that will create the world’s sixth-largest mobile phone carrier by number of subscribers. The Norwegian-Russian joint venture’s supervisory board approved the deal despite continued resistance from Telenor, the Norwegian firm which argues that the acquisition does not make strategic or financial sense. Telenor’s strong opposition to the deal still puts the deal’s completion at risk, especially given the added political risk arising over the last two weeks in Egypt, which strengthens Telenor’s position in the arbitration against the deal.
Earlier this week, OT and Wind Italy were reported by Reuters to be continuing to work on the planned merger deal with Vimpelcom, despite arbitration procedures by Telenor, the latter’s major shareholder against the potential deal which started in January 2011.
“This could create serious complications for the merged entity’s future, given that the three major shareholders would be in dispute (Alfa and Wind Telecom against Telenor). This is very negative in terms of making strategic decisions in the future for the merged telecom entity.
If Wind Telecom failed to finalise this deal with Vimpelcom, it will be the second time in less than 12 months that it fails to close an M&A deal, which can be considered “an alarming fact meaning that the group will not be able to close any deals unless it reaches a resolution with the Algerian government” (which has been the major stumbling block to all of OT’s planned deals).
The Egyptian pound fell today to the lowest level since January 2005, according to UBS AG. Foreign investors, who hold no more than 8 percent of all Egyptian bills, sold $1.7 billion of their holdings yesterday, pushing up yields 50 basis points, or 0.5 percentage point, The pound may slump 20 percent in the “short term,” Credit Agricole CIB said . The currency’s three-month non-deliverable forwards rose to a record last week, suggesting the currency may fall more than 7 percent against the dollar. The cost of insuring Egypt’s debt for five years with credit-default swaps soared to 430 basis points on Jan. 28, the highest since April 2009. They closed at 380 on Feb. 4