August 22, 2010 | In: Services

Vimptel, and Knowing Before Others Do

VIP, the stock of a Russian telecommunication company with operations covering several countries in the former Soviet Union, had 2.4 times the normal volume on Friday (5.75 million shares changed hands). Not something that may raise an eyebrow, but when you read the news today about a possible merger between Vimptel and Orascom Telecom, you will get a bit skeptical. The stock lately had some unusual volume, and is now bearish from a technical perspective, with an RSI below 35.

Additionally, the stock on Thursday had a large Put volume, which means that someone started taking some action anticipating a drop in price, which means that someone, somewhere knew that there were talks about the merger even before it was public end of the day on Friday. Hmmm…

From what it seems, it doesn’t look like it’s a merger to me, it looks like Vimptel is actually buying Orascom, a heavily indebted Egyptian company by Middle Eastern standards. Orascom has a debt of $4.61 billion and about 88 million subscribers with a very low and shrinking ARPU (ARPU is Average Revenue Per User). Clearly there seems to be a lot of mismanagement when it comes to Orascom, who tried to sell first to South African MTN, but the talks collapsed 2 months ago, maybe because the Algerian government strongly opposed it, or maybe because MTN found out that it was on the sucker end of the deal.

Expect VIP, that closed on Friday at $14.77 (funny name for a stock) to go down at least 3% tomorrow on these news and expect some very heavy volume, the stock will probably go down for the foreseeable future, as this is a very bad deal that will do more harm than good, although the number of subscribers from this “merger” will be 200 million, there’s a lot of debt, competition, and again, the ARPU in the countries where Orascom is operating is consistently shrinking. But who knows, maybe Algeria will block this merger as well?

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