RIGA - The situation surrounding the largest privatization in Latvia's history 's the sale of majority stakes in two telecommunication companies 's developed dramatically over the past week, with two major investors jockeying for position prior to the government's final decision.
The Swedish-Finnish telecommunications operator TeliaSonera raised the stakes by offering 500 million lats (714 million euros) for control over both Lattelecom, the dominant land-line service provider, and LMT, a mobile operator.
Kenneth Karlberg, Telia-Sonera's regional executive, made the informal proposal 's which exceeds the 440 million lats that has been attached to the state's stakes in the two companies 's while meeting Prime Minister Ivars Godmanis on Jan. 24.
Godmanis stressed that the proposal was only voiced and that all sides had to continue negotiations in February.
Both Karlberg and Godmanis said that TeliaSonera would meet with Blackstone, the U.S.-based investor that had agreed to finance a management-employee buyout of Lattelecom for 290 million lats.
Meanwhile, Lattelecom CEO Nils Melngailis said company employees and Blackstone were prepared to buy the state's 51 percent stake in Lattelecom at an open auction.
He said the investors would also buy TeliaSonera's 49 percent stake in Lattelecom as well, assuming that the government insists TeliaSonera sell the stake. "We must be very sure about our possibility to acquire 51 percent in Lattelecom," Melngailis told the Diena daily.
While meeting with Godmanis, TeliaSonera reiterated its long-stated ambition to control both Lattelecom and LNT, something current and previous governments have been reluctant to approve for fear that competition in the industry might erode. In recent years telecommunication services are the only sector where prices have fallen.
Godmanis reportedly said that the government does not believe TeliaSonera should own the fixed-line business.
"The negotiations were not easy," said the prime minister.
He has instead suggested that the state might sell its 51 percent stake at an open auction, while TeliaSonera should sell its 49 percent interest. Any auction would need TeliaSonera's approval to go ahead, Godmanis said, adding that the Scandinavian firm would reply by Feb. 6 when the two sides will next meet.
Previously the prime minister also said that he did not exclude the possibility that the state would hold onto its majority stake in Lattelecom. Also, he said if the state did decide to sell the 51 percent stake, it would be to an experienced company in the European economic zone (EU plus Norway and Switzerland), which would seem to exclude Blackstone.
Still, Godmanis expressed hope that Blackstone would agree to remain interested in investing in Lattelecom, particularly by purchasing TeliaSonera's 49 percent stake.
It was unclear when TeliaSonera and Blackstone would meet.
The negotiations for privatizing Lattelecom are proving to be a test of Godmanis' political and economic skills slightly more than a month on the job. The previous government had given a green light to a management-employee buyout of Lattelecom but later changed its mind for uncertain reasons.
The buyout option would have essentially taken the state out of the telecommunication industry 's barring digital television, which has been severely mired in scandal 's and placed 440 million lats in its coffers.
It was unclear why the government had the sudden change of heart, but it would appear that several influential politicians were uncomfortable with a relatively unknown U.S. investor coming in and suddenly controlling over 90 percent of the country's fixed-line system.
In accordance with the buyout, which was lobbied by Lattelecom CEO Nils Melngailis, company executives would have acquired 2.49 percent of the stock, employees 5 percent and the Blackstone Group 92.51 percent.
Over time Lattelecom managers and employees would have increased their stakes by buying shares from Blackstone using company profits.
Commenting the government's sudden reversal, Godmanis said that if the deal would have gone ahead a wave of lawsuits would have inundated the state.
"I have gone through these documents. The problem is with the management buyout method. I have information at my disposal suggesting that a number of companies are waiting for the transaction to be closed to file their lawsuits over... they would act as extortionists of a sort," he said Jan. 25.
He said there was a real risk that the state would never see a santim from the sale since the money would be tied up in court.
Godmanis said the government was prepared to sell its 51 percent stake in LMT, once the most profitable enterprise in Latvia's history, to TeliaSonera, which would give the concern a 100 percent stake.