Lattelecom 'deal of century' on verge of annulment

  • 2007-12-05
  • By TBT staff
RIGA - A complex 600 million euro transaction involving the state and several telecommunication companies suddenly appears to be on the brink of cancellation after a report surfaced that the economy minister was set to replace the CEO of Lattelecom who had helped blueprint the deal. 
The Diena daily reported Dec. 3 that Gaidis Berzins, the acting economy minister, had informed Nils Melngailis, Lattelecom CEO, that he would be replaced.

The paper reported that the decision would be made during the week of Dec. 3 - 7, and that the government, which was due to resign on Dec. 5, had already made up its mind.
Gundars Strautmanis, Lattele-com's council chairman, said that an extraordinary session of the council was planned for Dec. 6, and that a Lattelecom shareholders extraordinary meeting would take place the following day.

"At present we cannot provide any comments, as no decisions have been taken," Strautmanis said.
Lattelecom, the country's dominant land-line telecommunication operator that has aggressively expanded into mobile and e-services, is 51 percent owned by the state, while the remaining shares belong to TeliaSonera, the Scandinavian telecom company.
For years the Latvian state has wanted to sell its interest but was leery of TeliaSonera acquiring a dominant position in the market given its large stake in the country's largest mobile phone operator.

Finally, however, Lattelecom executives, led by Melngailis, proposed a management-employee buyout that, financed by foreign capital, would have put a whopping 439 million lats (624 million euros) into state coffers.
The government gave its preliminary approval to the deal, but For Fatherland and Freedom, a junior coalition partner in the current Cabinet, has spoken out vehemently against the transaction. The Economy Ministry happens to be controlled by the right-wing party.

Unofficially the deal is also opposed by People's Party adviser Andris Skele, who is also a former prime minister, wrote Diena, adding that Melngailis' inability to reach an agreement with Skele is one of the reasons why the government of Aigars Kalvitis has postponed making a final decision on the privatization.
According to Diena, if Melngailis' term as CEO is not extended, the position could be taken by the company's finance director, Juris Gulbis, who is closely linked to Skele.
Gulbis was the head of Latvijas Balzams liquor maker, which belonged to Skele's Ave Lat Group, and ran one of the S.P.I. companies after Latvijas Balzams was sold to the S.P.I. Group.
Other government ministers, however, were keen to see the deal executed since it represented a cash cow for development projects such as regional roads and the national library.

Diena wrote that Berzins suggested Melngailis submit his resignation, but the latter did not agree.
Melngailis confirmed that he did talk with the minister, though he declined to reveal the contents of the talk.
According to the privatization plan, Lattelecom would be sold to its management and employees, who contracted the U.S.-based Blackstone Group for finance. Lattelecom management would hold 2.49 percent of shares, employees about 5 percent and Blackstone Group 92.51 percent. Over time, management and employees would buy out shares from the Blackstone Group.
As part of the deal, TeliaSonera would give up its 49 percent stake in Lattelecom while taking over the state's 51 percent interest in Latvijas Mobilais Telefons.

TeliaSonera has all along claimed it would like to control both Lattelecom and LMT, though many state officials fear the company would gain a dominant position in the telecommunication market.