VimpelCom has confirmed it is to merge with Weather Investments – owner of Orascom Telecom – in a deal that will create the world’s fifth-largest mobile operator group. The terms of the deal are roughly in line with earlier reports; VimpelCom will acquire Naguib Sawiris’ Weather Investments, which owns 51.7 percent of Orascom Telecom and 100 percent of WIND Italy, with Weather taking a 20 percent economic interest (and an 18.5 percent voting interest) in the enlarged VimpelCom group. VimpelCom’s existing major shareholders Telenor and Alfa Group’s Altimo will see their economic shares in the firm diluted as a result to 31.7 percent and 31.4 percent, respectively.

The takeover will also involve a cash consideration of US$1.8 billion (to Weather), which VimpelCom said will be financed from existing cash balances and new debt facilities.

Not all Orascom/Weather assets are to be included in the deal. Orascom Telecom’s investments in Egypt (ECMS) and North Korea will be transferred to the current Weather shareholders, while Weather’s Greek arm – WIND Hellas – is excluded from the transaction entirely. However, Orascom’s highly-profitable Algerian unit – Djezzy – is included despite Orascom’s ongoing dispute with the Algerian government over ownership. The new company will have operations in 20 countries in total, serving around 174 million subscribers.

In a statement, VimpelCom said the newly-enlarged group will have pro forma net operating revenues of US$21.5 billion and pro forma EBITDA of US$9.5 billion for the year ended 31 December, 2009. Based on 2009 pro forma revenues, the existing VimpelCom-branded operations in Russia will represent 35 percent and Wind Italy will represent 34 percent of the combined company. The group is targeting synergies of US$2.5 billion “primarily derived from procurement opex and capex.”

“I am confident that our minority shareholders in Orascom Telecom will benefit from the synergies created by the combination of the two entities, especially in the area of procurement, and by the overall strengthening and de-risking of the Orascom Telecom balance sheet,” said Weather and Orascom Chairman Naguib Sawiris.

Alexander Izosimov, CEO of VimpelCom, added: “Today’s announcement marks a transformational transaction for VimpelCom. It offers our shareholders exposure to attractive growth markets in both Asia and Africa and the opportunity to diversify further our revenue base in terms of geography, currency and market characteristics.”

VimpelCom’s new board is expected to vote on the deal before year-end, with the transaction scheduled to close in Q1 2011 pending regulatory approvals.

See VimpelCom’s slides on the transaction here.