TALLINN - Estonian equities initially had their best day in almost 11-1/2 years on Aug. 21, with Lithuanian shares joining in the rally, after Sweden's telecoms giant TeliaSonera AB offered to buy out the remaining shareholders of its Baltic units, reports Bloomberg.
Estonia's OMX Tallinn Index jumped climbed 13 percent in Tallinn, due to the surge in AS Eesti Telekom's shares, which account for almost half of the index's weighting. Lithuania's key equities index, the OMX Vilnius Index, similarly had a good day, rising 12 percent.
Tallinn-based Eesti Telekom's shares soared 23 percent to 5.88 euros upon the offer after majority owner TeliaSonera offered to pay 93 kroons (5.94 euros) a share for the almost 40 percent of the company it doesn't already own.
AB TEO LT added 30 percent to 1.82 litas (0.52 euros) a share on the Lithuanian exchange after TeliaSonera offered 1.83 litas per share for the 40 percent of the company it doesn't already own. TEO makes up 26 percent of the 32-member index, by weighting.
"The offer for Eesti Telekom was about 24 percent above market price and the offer for TEO about 30.7 percent above market price," said Swedbank analyst Marko Daljajev.
Stocks in Estonia have gained 39 percent this year, while Lithuanian equities have added 36 percent. Both Baltic indexes plunged more than 60 percent in 2008.
TeliaSonera, based in Stockholm, entered the Baltic countries in 1991 and has said it wants to take control of its subsidiaries in the region.
"The question now is how the main minority shareholders will react to the news," said Daljajev. Danske Bank, a shareholder in both target companies, rejected the offers as too low.
Chief Financial Officer of TeliaSonera Per-Arne Blomquist said, in an interview with business daily Aripaev, that "Our offer is in line with what we believe Eesti Telekom is fundamentally worth. It reflects our understanding of Eesti Telekom's long-term business outlook. We are offering a 24 percent premium, after a 16 percent run-up in the shares since mid-July; 93 kroons per share implies a solid valuation premium compared to Eesti Telekom's peers. In short, we consider this an attractive offer and intend not to increase the offer price."
Blomquist adds that TeliaSonera, with stronger ownership, would bring to the companies "enhanced access to TeliaSonera's know-how and innovative solutions to enable them to develop and provide new services to customers at lower cost. In the short term perspective customers are unlikely to notice any major change, but in a longer perspective we expect that they will get new services faster and at lower cost. In terms of the significant investments required in new infrastructure to cater for new technology such as 4G and increased volumes of usage, both these companies will benefit from TeliaSonera's strong financial position."
Disregarding the negative reaction among some of the companies' existing shareholders about the perceived low offer price, the CFO countered that "I would not comment on [their] research… I was not very surprised at how quickly the local financial community reacted and concluded that the offer price needed to be higher, but it indicates that the reaction was emotional rather than well thought-through and fact based. Eesti Telekom and TEO LT should be compared to similar telecom companies operating in the CEE, that is, to local players in markets that are similar to the Baltics. Comparisons with multi-billion global or pan- European telecom operators are not at all adequate, in my opinion."
