* Source denies MegaFon may buy up to 5 percent of Vimpelcom
* Analysts say such an investment would be strange
(Releads with source denying newspaper report, adds Telenor, analysts' comment, background)
By Maria Kiselyova and Joachim Dagenborg
MOSCOW/OSLO, July 3 (Reuters) - Russian cell phone service operator MegaFon has no plans to buy shares in bigger rival Vimpelcom, a source close to MegaFon's shareholders said on Friday, denying a newspaper report.
Vimpelcom, the country's second biggest mobile operator, is 44 percent owned by Russian billionaire Mikhail Fridman's Alfa Group, which also has a 25.1 percent stake in Vimpelcom's smaller rival MegaFon, while Norwegian group Telenor has a 29.9 percent stake in Vimpelcom.
"This is not true," the source said, referring to a report in business daily Kommersant which said MegaFon was considering buying up to 5 percent of Vimpelcom's shares on the open market.
The paper quoted two sources close to the mobile operators' shareholders as saying the proposal was on the agenda of MegaFon's board meeting on July 1 but that no decision was made. MegaFon declined to comment.
Telenor is at risk of losing its stake in Vimpelcom after a Siberian court awarded $1.7 billion damages against Telenor after Farimex, a tiny Vimpelcom shareholder claimed Telenor had held back Vimpelcom's business expansion in Ukraine.
Following the court ruling Russian bailiffs issued an order in June to auction off Telenor's shares in Vimpelcom to cover the award, sending Telenor's shares down as much as 6 percent.
Telenor is contesting the court ruling, which it views as being part of its protracted dispute with Alfa Group although Alfa has denied any link to Farimex. Analysts also believe the fine is a manoeuvre linked to high-stakes talks between the two companies.
"There are so many interests ... in MegaFon that I am sure may try to influence the company in issuing statements in different directions, so we need to be aware of the fact that there is a game going on here," said Espen Torgersen at Carnegie in Oslo.
On June 26 business daily Vedomosti said that Telenor was close to an agreement with Alfa to merge their Russian and Ukrainian mobile telecoms businesses, potentially ending the five-year boardroom war between the two.
But on June 3 Kirill Babayev, senior vice president of Alfa's telecoms management unit, said Alfa had halted talks with Telenor. At the same time Telenor said again that there would be no deal while the Siberian legal action continues.
The Kommersant sources declined to specify whether MegaFon might obtain shares from Telenor's 26.6 percent voting stake seized by the court and some 25 percent of Vimpelcom shares are in free float.
"We would consider it a theft if someone were to buy or sell the (seized) shares," Telenor's spokesman Dag Melgaard told Reuters. "We remain firm (in our view) that a potential forced sale of our shares would be viewed as a theft of our assets."
Analysts said buying shares in a competitor would not be the best option for MegaFon.
"Strictly from an operational point of view this is a strange statement. (MegaFon) is a strong competitor ... and with 5 percent (of the shares) in a competitor's business you would not get a seat on the board," Torgersen said.
"We do not consider investments into competitor's shares as an optimal option because in the case of economy deterioration both the financials of MegaFon and the value of Vimpelcom's equity may suffer," Uralsib bank said in a note.
Also, Sweden's TeliaSonera holds a 43.8 percent stake in MegaFon, which ranks as Russia's third-largest wireless operator. Russia's Telekominvest, part-owned by businessman Alisher Usmanov, holds a 31.1 percent stake. (Editing by Greg Mahlich)