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Telecom Italia’s Argentinean bid succeeds as VimpelCom’s acquisition hits problems

Telecom Italia’s bid to increase its stake in Telecom Argentina’s controlling company has been approved by the Argentinean regulator. TI now has full control of Sofora Telecommunications after increasing its 50% stake to a majority 58%.

The bid had previously faced obstacles due to Telefonica’s extensive reach – the Spanish company controlled Telecom Argentina as well as owning a share of TI, thereby holding sway over two of the market’s biggest operators.

In order to avoid homogenising the market, it was thought that TI would sell its stake in Telecom Argentina, so it is something of a surprise to see it purchase a controlling stake in the company. However, the Argentinean regulator is apparently satisfied that TI’s operations will remain separate from Telefonica’s.

Telecom Italia has stated that “measures have been agreed upon to ensure there will be no influence or participation on the part of Telefonica in any Telecom Italia decision-making process concerning its Argentinean subsidiaries.” The regulator has imposed restrictions on any interactions between the two companies.

Another high-profile acquisition may not be faring so well, as reports have suggested two of VimpelCom’s main shareholders have expressed reservations over its US$6.6 billion deal to purchase Weather Investment, owner of Orascom.

The root of the problem is the ongoing dispute between Orascom and the Algerian government, who are claiming ownership over Orascom’s Algerian operations, Djezzy. A victory for Algeria’s government would result in Djezzy being nationalised – and this could be a deal-breaker for VimpelCom’s largest investor, Alfa Group.

Telenor, the second key shareholder, has raised an issue with similar ramifications to Telecom Italia’s acquisition: Telenor and Orascom have competing mobile operations in Bangladesh and Pakistan. Regulators could feasibly object to a merger that took control of these operations, as it would drastically reduce competition in both markets. A potential solution to this problem would be for VimpelCom to avoid purchasing assets in markets where Telenor currently operates.

These issues are the not only problems faced by the merger, with VimpelCom’s net debt potentially rising to US$24 billion if the deal goes ahead – an increase of US$20 billion.

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