Norway's Telenor and its key partner in Russia, the Alfa Group, will pool their Russian and Ukrainian holdings into a New-York listed mobile operator, ending one of the longest corporate wars Russia has ever seen.

The announcement, which follows a meeting between Prime Minister Vladimir Putin and Telenor Chief Executive Jon Fredrik Baksaas in Moscow last week, will see Russia's No. 2 mobile operator Vimpelcom, worth around $18.4 billion, merge with Ukraine-based Kyivstar.

The half-decade-long battle between Telenor and its powerful partner, the oil-to-telecoms Moscow-based Alfa Group, led by billionaire Mikhail Fridman, has been a black cloud hanging over Russia's investment climate, although a merger between their jointly held companies has long been the expected outcome.

However, Telenor had faced the potential selloff of its stake in Vimpelcom to pay a $1.7 billion court fine in a case brought by an obscure shareholder which Alfa says is unrelated to it.

Investors feared Russian asset values would be destroyed if a Western investor, part owned by a European state, were stripped of a prime asset by a provincial court.

Telenor said in a statement the two sides agreed to suspend the legal battles and move ahead with the deal.

The parties have agreed to suspend all their ongoing legal proceedings and take action to withdraw or settle them prior to the transaction being completed, Telenor said in a statement.

Norway's Industry Minister Sylvia Brustad called the deal good news.

From the information I've received so far this is a good deal for Telenor's shareholders, Brustad said in a statement.

Shares in Telenor surged nearly 15 percent on the news, before scaling back slightly to trade up 11.8 percent at 70.95 Norwegian crowns ($12.18) at 0731 GMT.

ECHOES OF BP'S CLIMBDOWN

Alfa's telecoms unit said on Monday that Telenor would get 35.42 percent of voting shares in the new company, Vimpelcom Ltd, while Alfa would get 43.89 percent.

Telenor currently holds 30 percent of the votes in Vimpelcom, while Alfa has 44 percent of voting stock. Telenor majority owns Kyivstar, and has been reluctant to part with control of the key asset. Alfa is a minority shareholder in Kyivstar.

The deal bears rough similarities to Alfa's peace deal with BP, its partner in a Russian oil venture, where the British partner took a reduced management role though their peace deal although its stake in the joint venture remained the same.

Minority shareholders in Vimpelcom would receive one depositary receipt in the new entity for each Vimpelcom depositary receipt currently held, or be bought out at 0.05 kopecks per depositary receipt.

Vimpelcom welcomed the statement, saying it would create a new base for growth.

Telenor and Alfa were expected to hold a news conference in Moscow at 0800 GMT.

($1=5.827 Norwegian Crown) (Reporting by Gleb Bryanski and Melissa Akin in Moscow, Terje Solsvik in Oslo; Editing by Hans Peters and Simon Jessop)

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