Lattelecom employees offer to buy out company

  • 2007-05-02
  • By TBT staff
RIGA - The employees and management of Lattelecom have confirmed that they are prepared to buy out the telecommunication company for 290 million lats (413 million euros) with the help of international finance.

The offer is 12 percent higher than the average value of the company established by two auditors last year, or 260 million lats.
The offer also gives the government another option while deciding the fate of Lattelecom and LMT, a highly profitable mobile phone operator. Both companies are for an ownership swap, but the state has been unable to come up with a satisfactory solution.

TeliaSonera, the Scandinavian telecommunication firm, is keen to acquire total ownership of both companies, but the government is reluctant to allow it since TeliaSonera would have dominant control in the market. Plans for a swap 's whereby the state would take over ownership of Lattelecom and TeliaSonera of LMT 's have been tabled, but so far ministers find the deal unpalatable.
The employee buyout option may be a way out. CEO Nils Melngailis told the Diena daily that each of the 3,000 Lattelecom employees would be able to participate in the privatization. Funds would be raised through loans via a firm set up for the purchase, he said.

According to reports, the company planned to submit a complete acquisition offer on April 27.
The proposal will supposedly contain several purchase scenarios considering that Lattelecom also owns a 23 percent stake in LMT. As that stake alone is worth some 150 's 155 million lats, the purchase price of Lattelecom could reach 450 million lats, Diena reported.
The state could win big if the plan were adopted since, together with the sale of the state's 51 percent stake in LMT, it would fill coffers by some 400 's 420 million lats, the equivalent of 10 percent of the state budget. The state is even relying on income from the sale to plug the budget deficit (see story on Page 12).
The state is likely to warm to the proposal, though there will be questions as to the eventual fate of Lattelecom should the employees opt to collectively sell the stake in the future. Restrictions might be put in place to bar TeliaSonera from being the purchaser in such a deal.

The government has been postponing a decision from month to month, and it is difficult to gauge by statements if there is political will to reach a decision in May about the fate of the two telecommunications companies.
Ernst & Young, an auditing firm chosen by the state, and Carnegie, an investment bank picked by TeliaSonera, evaluated both Latvian telecommunications companies last year.

The average value of Lattelecom was set at 260 million lats, while the average value of LMT was estimated at 668 million lats. The evaluation is valid only for six months, placing additional pressure on the government to make a decision.