Telia would like to be equal partner with Latvian government in merged company of Tet and LMT

RIGA - Swedish company Telia would like to be an equal partner along with the Latvian government in the merged company of the telecommunications companies Tet and Latvijas Mobilais Telefons (LMT), Telia spokesman Tobias Gyhlenius told LETA.

"As it was communicated in the dialogue with Latvian government representatives, Telia believes that there are attractive opportunities to merge LMT and Tet and that such a combined fixed and mobile offer would be attractive to Latvian customers while creating value for all stakeholders," said Gyhlenius.

The Telia spokesman added that "to find a structural solution around the ownership in LMT and Tet is long overdue and Telia has been clear that it either sees a scenario where the companies are merged and Telia would be a co-owner and equal partner with the Latvian government", including by actively engaging in and supporting the development of the merged company.

According to Gyhlenius, Telia has stated in the negotiations that it is open to to a change of the companies' ownership structure.

At present, Telia directly and indirectly owns 60.3 percent of LMT shares, as well as a 49 percent stake in Tet. If these two companies were merged, Telia's current holdings would make up 55 percent of the merged company's shares.

Telia would be ready to consider an acquisition of the Latvian shares in Tet and LMT if any potential offer was not in line with the companies' fair value.

Alternatively, Telia could divest its shares to the Latvian state on appropriate terms and conditions.

"A scenario where status quo is maintained is the worst scenario and poses a real risk of eroding value for both shareholders," Gyhlenius said.

Telia has not yet received any official offer from the Latvian government.

As reported, the Cabinet of Ministers on December 18 authorized the Economics Ministry to make an offer to buy out shares in Tet and Latvijas Mobilais Telefons (LMT) telecommunications companies from Swedish company Telia, Economics Minister Viktors Valainis (Greens/Farmers) informed.

The possible transaction amounts are commercially confidential information and will only be disclosed if Telia formally agrees to the offer made by the Latvian state.

At the same time, Telia, as a listed company, is obliged to report such transactions, Valainis added.

A reply from Telia is expected within a month.

Speaking about the possible future structure of Tet and LMT, Valainis said that the government has a clear vision of what to do next if Telia accepts the proposed solution, but "then it will have to be further assessed by the government how to structure this transaction to minimize its impact on the state budget".

Valainis added that this scenario was chosen from several possible ones.

Asked whether the government had other scenarios ready in case Telia did not accept the offer, Valainis said that there were other possible scenarios but did not elaborate on them.

As reported, the government at a closed sitting on November 19 considered more than 30 various scenarios for LMT and Tet but did not yet adopt a final position. The Economics Ministry was given three weeks to update the plan.

According to unofficial sources, in the negotiations between Latvia and Telia, several possible options have been discussed - from the merger of Tet and LMT to maintaining the status quo. The possibility of a full or partial buy-out of the two companies from Telia, as well as the divestment of certain assets have also been considered.

A complex management system was once created for Tet and LMT, and the two shareholders - the Latvian state and Telia - have so far been unable to agree on changing the system.

The state, through Public Asset Manager Possessor, owns 51 percent of Tet, while Telia's subsidiary Tilts Communications owns 49 percent of Tet. In LMT, on the other hand, Telia and its subsidiary Sonera Holding own a total of 49 percent, the Latvian state owns a total of 28 percent through the Latvian State Radio and Television Center (LVRTC) and Possessor (5 percent), while Tet holds another 23 percent.

This, in theory, means that through Tet, Telia controls 60.3 percent in LMT, while Latvia's stake in LMT is 39.7 percent. This, however, is not how it works in practice, as the Latvian state still has a decisive control of LMT, because it is also a majority shareholders of Tet. This complex ownership scheme has been impeding several strategic projects requiring unanimity.

Telia initially proposed a scenario where LMT would buy Tet's telecommunication business, which would become a separate company (provisionally called Tet Telco). The two existing Tet shareholders would be paid special dividend and Telia would sell Latvia its 49 percent stake in Tet, acquiring at the same the missing 1 percent in LMT. As a result, the two key shareholders - the Latvian state and Telia - would own 50 percent each in LMT. It was also proposed to later launch an initial public offering (ILO) and list 20 percent or more LMT shares on a stock exchange. Both shareholders would sell some of their shares in the IPO. The top management of the companies would also be replaced as a result of the transaction.

Latvian officials have not officially commented on this proposal but rejected an option for the Latvian state to sell its shares.

Latvijas Valsts Radio un Televizijas Centrs (LVRTC; Latvia State Radio and Television Center), which holds the 23 percent stake in LMT on behalf of the state, has expressed readiness to financially participate in the buyout of Tet telecommunications company's shares from Telia. LMT President Juris Binde has backed this option, saying that LMT, in turn, might acquire Tet's client portfolio.

The Chairman of the Board of Tet, Uldis Tatarcuks, has said that Tet might buy shares in LMT. In such a scenario, providing that Tet's shareholder structure does not change, 51 of the merged company would belong to Latvia and 49 percent to Telia.

Maris Vainovskis, a board member of the Foreign Investors' Council in Latvia (FICIL) and senior partner at Eversheds-Sutherland law firm, said in an interview to TV3 channel earlier this month that there are signals that John Tully, co-owner and board chairman of the computer network equipment manufacturer MikroTik, might be interested in investing in Tet and LMT.

Tet Group posted a turnover of EUR 295.753 million for 2023, down 9.5 percent year-on-year, while the group's profit fell 40.1 percent to EUR 15.226 million. At the same time, Tet's own turnover in 2023 was EUR 187.204 million, down 19.1 percent on 2022, while its profit fell 21.1 percent to EUR 18.987 million.

Meanwhile, LMT Group posted a turnover of EUR 310.269 million for last year, up 6.7 percent year-on-year, while the group's profit rose 0.6 percent to EUR 32.069 million. The parent company's turnover in 2023 was EUR 175.062 million, up 5.9 percent year-on-year, while its profit rose 20.6 percent to EUR 34.864 million.