UPDATE 1-Telenor tempts Vimpelcom owners to reject Wind bid

* Sees extra Vimpelcom dividend if Wind deal dropped

* Writes to Vimpelcom shareholders to reject Wind deal

* Warns of big debt burden, slower growth prospects

* Vimpelcom dismisses extra payout proposal
(Adds Vimpelcom reaction, paragraphs 7-8)

By Wojciech Moskwa

OSLO, March 4 (Reuters) – Norway’s Telenor, seeking allies
among Vimpelcom’s minority shareholders to thwart the Russian
operator’s $6 billion Wind Telecom purchase plan, offered the
prospect of an extra dividend from Vimpelcom if the deal
failed.

Telenor (TEL.OL: Quote, Profile, Research) faces an uphill battle to convince more
than 70 percent of independent Vimpelcom (VIP.N: Quote, Profile, Research) owners to
reject the Wind deal with Egyptian tycoon Naguib Sawiris at a
shareholders’ meeting scheduled for March 17.

With 36 percent of Vimpelcom’s voting stock, Telenor has
said the purchase of Wind makes no strategic or financial
sense.

In a letter sent to Vimpelcom shareholders on March 2, and
obtained by Reuters on Friday, the Norwegian operator said if
the deal failed it would seek an extraordinary payout of at
least $1 per share on top of any regular dividend.

“A better alternative for all shareholders is the payment
of an extraordinary dividend,” Telenor said in the letter that
calls on Vimpelcom shareholders to reject the deal.

Telenor is seeking to regain the initiative after a London
court this week denied its injunction to stop the vote.
[ID:nLDE72103I]

Vimpelcom rejected Telenor’s plan to pay an additional $1.3
billion in dividend on top of the $850 million it already paid
out last year and with a final 2010 dividend still to follow,
calling it a “self-interested” and a “not serious” proposal.

“An additional payment, as proposed by Telenor, would
effectively shrink the company and deprive it of the
significant growth opportunities it was created to undertake,”
Vimpelcom spokeswoman Elena Prokhorova said in an email to
Reuters.

Telenor’s head of mergers and acquisitions, Torbjoern Wist,
said he has had positive feedback from meetings with
Vimpelcom’s financial shareholders, who jointly hold 19.3
percent of voting stock. But with Telenor with 36 percent of
Vimpelcom votes and pro-Wind group Altimo at 44.7 percent,
victory will be tough.

“I’m not going to say this is not going to be a challenge,”
Wist told Reuters in an interview. “But we are encouraged by
our meetings so far and also by the clear recommendation
against the Wind deal by the (shareholder advisory group)
ISS.”

Telenor plans to meet with as many Vimpelcom shareholders
as possible before the meeting.

Vimpelcom sees the Wind deal, which will give it all of
Wind Italy and a majority stake in Egypt’s Orascom Telecom
(ORTE.CA: Quote, Profile, Research), as a way to boost its geographical footprint and
become one of the world’s largest emerging market mobile
services providers.

WARNING LETTER

Telenor’s letter says the deal will cut Vimpelcom’s revenue
and EBITDA (core profit) growth profile, as well as its
margins, in part because of Wind Italy’s sour outlook as an
indebted, No. 3 operator in a mature Italian mobile market.

Furthermore, Telenor argues, Vimpelcom is paying an 84
percent equity premium for Wind Telecom assets, based on the
market capitalisation of Orascom adjusted for the spin-offs and
the implied value of Wind Italy based on its peers.

Telenor said that as a result of the transaction,
Vimpelcom’s consolidated debt would rise to $25.7 billion from
$6.5 billion, while its consolidated EBITDA would increase by
only $4 billion, in the best case scenario. If Algeria takes
over Orascom’s unit there, that would fall to $3 billion.

“I am glad Telenor is active in working with minorities,”
said Elena Suslova, a fund manager at Moscow-based Wermuth
Asset Management, which owns Vimpelcom shares. “Altimo is
(however) more effective since it seems to have better access
to the shareholder base of Vimpelcom. This is my impression as
a shareholder.”

Wist said the ISS, an advisory body, has come out against
the Wind deal in large part because it would undermine
Vimpelcom’s corporate governance structure, which now carefully
balances power between Telenor, Altimo and the independents.

“Wind would get 30 percent of Vimpelcom’s voting stock,
which will crowd out the independents and over time may also
reduce their representation on Vimpelcom’s board,” he said.

Telenor is also in arbitration about whether it can take
part in Vimpelcom’s share issue for Sawiris, which would not
stop the deal, but would allow it to keep its stake and ease
its concerns that it was handing control of Vimpelcom to
Sawiris and Altimo’s owner, Russian billionaire Mikhail
Fridman.
(With additional reporting by John Bowker and Anastasia
Teterevleva in Moscow; Editing by Will Waterman and Tim
Dobbyn)