Vimpelcom (VIP) Stock Gains as Hutchison Merger Moves Closer to Completion

NEW YORK (TheStreet) -- Vimpelcom (VIP) shares are up 7.5% to $5.66 in trading on Tuesday after the company reached an agreement with Hutchison Whampoa over who would be named CEO of their combined company should the two telecom holding companies complete the proposed merger of their Italian businesses.

The companies are backing Maximo Ibarra, CEO of VimpelCom's Wind Telecomunicazioni unit, as CEO of the new company, according to Bloomberg sources. Amsterdam-based Vimpelcom and China-based Hutchison have been engaged in talks to consolidate their Italian interests in an effort to create Italy's largest telecom carrier.

The management structure of the new company has been a sticking point in negotiations, according to Bloomberg sources, as the combined company's would have a total of 30 million customers and annual revenue over $7 billion.

No final decisions have been made concerning the company's management structure and sources say that a potential deal could still fall apart.

TheStreet Ratings team rates VIMPELCOM LTD as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate VIMPELCOM LTD (VIP) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 5.08 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, VIP maintains a poor quick ratio of 0.81, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has decreased to $1,399.00 million or 30.39% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, VIMPELCOM LTD has marginally lower results.
  • VIP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.18%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Wireless Telecommunication Services industry and the overall market, VIMPELCOM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for VIMPELCOM LTD is currently very high, coming in at 73.95%. Regardless of VIP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VIP's net profit margin of -20.29% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: VIP Ratings Report
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