RIGA - Citing disarray within the government and the sudden discovery that the deal actually does violate Latvia's privatization laws, the Justice Ministry has decided to delay the final decision on the Lattelecom management buyout, which was scheduled for Nov. 6. The privatization would have seen U.S. private equity investor The Blackstone Group become the key owner of the company.
Justice Minister and acting Economy Minister Gaidis Berzins said that the Latvian government does not plan to discuss provisions for the privatization as the current political situation is too unstable. "The issue of the Lattelecom privatization is significant for the state, therefore making a crucial decision in this current politically unstable situation would be irresponsible," he said.
The government's ruling coalition has, since September, lost four of its ministers and is considered on the verge of collapse.
"The decision [to sell] has to be made by a full-bodied economics minister in a stable government, otherwise the privatization process would be unnecessarily rushed and could cause negative consequences. Privatization of Lattelecom should be carried out at a time optimally convenient for Latvia," Berzins confirmed.
He says that the Justice Ministry has pointed at several significant drawbacks in the privatization plan, from the legal point of view, that need to be improved. Other ministries have also voiced objections in light of these drawbacks. "The privatization of Lattelecom should be carried out according to Latvia's legislative acts," he added.
The question of legality of the deal has taken center stage with only days to go before the government was to have made its final decision. The buyout proposal was initiated by Lattelecom's board chairman, Nils Melngailis, back on March 23.
Lattelecom spokeswoman Maija Celmina said that the company sees no reason why the Lattelecom shareholders 's Swedish concern TeliaSonera and the Latvian government 's should not continue with the buyout. "We are expecting the government's decision on our proposal, and information about the structure of the financing [follows] the regulations of the Cabinet of Ministers, adopted on June 12. The decision has to be made in the near future to be able to close the deal this year," she said.
Celmina reiterated that after the deal 50 percent of Lattelecom shares will be owned by The Blackstone Group, and 50 percent by Lattelecom management and employees, however, the voting rights are to be split 50.1 percent and 49.9 percent, respectively. Blackstone is to pay in 92.5 percent of the equity.
This has been called a "management and employee" buyout, though the employees are being given, as a group, only 1 percent of the equity in the company, and have no voting rights. An additional 4 percent of shares are set aside for employee purchases, and these also carry no voting rights.
Berzins has ordered the Latvian Privatization Agency to continue its assessment of the legal provisions of the deal. He did not say whether this means that a new valuation of Lattelecom would be done, or if fresh privatization proposals are to follow.
Last year, Lattelecom's income was 205.7 million euros with profit of 55.7 million euros.
