Monthly Archives: January 2008

MegaFon may go public next year

Russia’s third-largest cellular operator, MegaFon, could hold an initial public offering (IPO) in 2009 according to reports from RIA Novosti. The company’s CEO, Sergei Soldatenkov, was quoted as saying: ‘We want to hold an IPO. This is unlikely to happen this year, as shareholders have not yet discussed the prospect, but it will be possible in 2009.’ MegaFon is currently owned by TeliaSonera (35.6%), Telecominvest (31.3%), CT-Mobile (25.1%) and IPOC International Growth Fund (8%). A long-running shareholder dispute was settled last November when IPOC agreed to drop a legal claim to Altimo’s ownership of CT-Mobile. Altimo acquired the 25.1% interest in MegaFon in 2003 but IPOC maintained that it should have had the right of first refusal on the stake.

TeliaSonera changes ownership stakes in Georgian, Uzbek holdings

TeliaSonera AB said it has increased its stake in a Georgian mobile telecoms operator, and decreased its stake in an Uzbek operator, in order to streamline ownership structures and to strengthen its position and influence in the Georgian and Uzbek markets.

Fintur Holdings BV, in which TeliaSonera (other-otc: TLSNF.PK – news – people ) owns 74 pct, has acquired an additional 14.3 pct interest in Geocell LLC, the second largest mobile operator in Georgia, for approximately 210 mln skr in cash, increasing its ownership in Geocell to 97.5 pct from 83.2 pct.

In addition, TeliaSonera has sold a 26 pct stake in its 100 pct-owned Uzbekistan mobile operator OOO Coscom, the third largest mobile operator in Uzbekistan, to a local partner for approximately 320 mln skr (50 mln usd).

‘The introduction of a minority shareholder in Uzbekistan is expected to bring significant local capabilities and efficiencies to enhance our position and influence in the Uzbek market,’ said Tero Kivisaari head of TeliaSonera Eurasia.

Melngailis last stand – why?

Why is Lattelecom CEO Nils Melngailis, whose MBO plan was rejected by the government and who was removed (for no clear reasons) as board chairman, still hanging on?

One explanation is precisely that — no clear reasons for him to “take the hint” and resign. Lattelecom has performed well in its financial indicators, and proposing an MBO that was initially accepted by both shareholders is not a a breach of trust as some Latvian commentators have suggested. Were this so, there would be very few MBOs in the world, as any management member proposing one would face dismissal for disloyalty, breach of trust and the like.

It is clear, however, that the Latvian government does not want Melngailis running Lattelecom, and TeliaSonera, the other owner, is probably not completely at ease with him. However, neither side can really show cause for his dismissal, so that it is an issue of honor for Nils not to resign “under a cloud” that has nothing of substance in it. Indeed, to propose the MBO and to get so far as to have The Blackstone Group and a bank consortium assembled, ready to execute, was a high risk move, showing entrepreneurial courage. It should, in proper context, be a significant merit on Nils CV even though it was ultimately torpedoed by the Latvian government.

Melngailis was recruited and hired to lead Lattelecom, to be a strategist (coming from IBM‘s Business Intelligence unit), not as a hard-charging, win-at-all-costs dealmaker. That he got as far as he did with the MBO is remarkable, given that, on the government side, we are dealing with capricious and irrational decision-makers.

Which brings us to the next question: WTF are Blackstone still doing here? If they want to buy 49 % of Lattelecom and share it indefinitely with the loonie-tunes 51 % government owner, there is a bridge that many Blackstone execs cross every day that may be for sale…

Here, again, the reason may be Blackstone’s reputation as hard bargainers — bulldogs, as one source put it. So they are playing out the bulldog role until — I think quite soon — they will drop their end of the bone.

An interesting question — what about the four banks who are putting up LVL 200 million of the LVL 290 million deal. How long can they provisionally budget significant funds (around LVL 50 million from each) that will never be lent. Isn’t it time to write off this deal and rebudget the lending plan for 2008?

My prediction — the whole thing will be dead by Easter, Blackstone gone and Nils heading for a continued international career in a less irrational business environment. The next confrontation may well be TeliaSonera against the government’s efforts to force it to sell out. A straight deal, Lattelecom shares plus cash for Latvian Mobile Telephone (LMT) and basta was also ignored by the government. They are the wavering, paranoid (everyone will sue us), hallucinating (many will come to an auction of Lattelecom), insecure and blatantly ignorant (of international business practices) villain (or simply idiot) in this whole game.

TeliaSonera ready to top Latvian telco offer

Nordic telecoms group TeliaSonera said on Thursday it was ready to top up an offer price for Latvian fixed-line operator Lattelecom by 70 million Latvian lats ($147 million).

It said it wanted to buy 100 percent of Lattelecom and dominant mobile operator LMT, but the Latvian government said it wanted TeliaSonera to sell out of Lattelecom if it bought up LMT in order to boost competition in the telecoms market.

“Our position is that we would like 100 percent of both companies,” TeliaSonera mobile unit chief Kenneth Karlberg told Reuters after meeting the Latvian government.

Karlberg said TeliaSonera was ready to add 70 million lats to the price which private equity group Blackstone was set to finance in a management buyout the government has now rejected.

That would have raised about 300 million lats for the state.

Latvian radio quoted Karlberg as saying that if TeliaSonera also bought the stakes in LMT it did not own, the government would raise almost 500 million lats.

Latvian Prime Minister Ivars Godmanis told reporters that the government still aimed to keep 51 percent in Lattelecom, which it would sell in an auction to telecoms companies operating in the European Union.

Godmanis said the government still wanted TeliaSonera to sell out of Lattelecom if it got control of LMT.

“It was not an easy discussion,” Godmanis said.

The two sides are to meet again on Feb. 6, Godmanis added.

TeliaSonera has 49 percent of Lattelecom, while the state has 51 percent. Telia has 49 percent of LMT, the state 28 percent and Lattelecom 23 percent.


Putting it mildly, Prime Minster Ivars Godmanis has made his first bad decision. (More ominously, he has shown that his government intends to preserve the “fubar zeitgeist” prevalent in Latvia.) On Jan. 17 he announced that the government would not accept a buyout deal for Lattelecom, the country’s dominant fixed-line operator, a transaction that would have brought a tremendous sum of cash to state coffers and closure to the company’s much-maligned privatization saga that began in 1993. The reasons for the rejection were opaque – and therefore unconvincing – and the prime minister left many observers wondering what his real motivation is.

Regardless, thanks to Godmanis’ myopic decision, or simply the bad advice he received, Latvia stands to lose a phenomenal amount of money. The original transaction, designed by Lattelecom CEO Nils Melngailis and approved by the government last summer, was complex (see story on Page 6), but in contrast to past privatizations, it at least guaranteed the state an attractive price for its assets (Latvia’s last major privatization, in October 2006, saw an oil terminal sold via an auction designed for selling fresh fish and flowers).

In a nutshell, the deal called for TeliaSonera, a Swedish-Finnish corporation, to take over LMT, a mobile operator and for years the most profitable firm in Latvia, while Lattelecom managers and employees, backed with foreign financing, would have controlled their company. In exchange, the government would have received some $600 million, or more than 3 percent of GDP.
Such a windfall comes all too rarely, and for Latvia represented a chance to establish a “rainy day” fund that could be utilized in direr times. Alternatively, the funds could be used to build the national library, a project the entire nation could benefit from. Instead, Godmanis balked, and for reasons that he proved woefully incapable of vocalizing.

As Melngailis confessed to journalists, he believes that the government did not consider the company’s targets and financial needs when making the decision. Sadder still, the government didn’t consider the country’s own goals and needs. This was endemic of Aigars Kalvitis’ government, and appears will be the modus operandi of Godmanis’ Cabinet, which has 16 of the same 19 ministers.
No one knows what will happen next. Godmanis suggested half-heartedly that TeliaSonera sell its 49 percent stake in Lattelecom to a European investor, after which perhaps the government could offload its 51 percent interest. This, of course, is absurd. No strategic investor will pay for a 49 percent stake if it is unsure of the fate of the “other half.”

He also mused that the state might auction off its 51 percent. This is equally senseless. First, it won’t fetch as much money if the shares are sold in small units. Cash premiums are paid for controlling stakes. Certainly the prime minister knows this. Second, the current situation on international financial markets is not conducive to either public auctions or private tenders, and may not be so for some time to come.
Another possibility is that TeliaSonera will walk away with controlling stakes in both Lattelecom and LMT, which is precisely what the previous government went to great lengths to prevent. This doesn’t have to be a bad outcome if two conditions are met: 1) the government maximizes revenue in the subsequent privatization, and 2) competition on the telecommunication market is guaranteed.

Another drawback is that Melngailis is likely to resign his post now that the deal has fallen through. He has been a good manager for the company, and it will be a shame if he goes. But understandably, one can tolerate working under incompetent governance for so long.

TeliaSonera CEO says company must boost growth, speed up decision-making

TeliaSonera AB must boost its growth, speed up its decision-making, and is eyeing more acquisitions in Asia, the newspaper Svenska Dagbladet reported citing chief executive Lars Nyberg.

‘We have to boost growth in this company. Fixed line income will continue to disappear and unfortunately each krona we replace it with is not worth as much,’ Nyberg said.

TeliaSonera is trying to boost growth through IP-TV, and increased data traffic through the mobile networks, in addition to the above mentioned growth in Asia.

‘We have to succeed in all these three areas,’ Nyberg said.

Nyberg reiterated that the company can cut about 5 bln skr from its cost base.

‘We are not finished with the analysis yet, but I am not just talking about payroll cuts, but also about what we are doing today which we don’t need to do at all,’ he said.

He also wants to speed up decision-making in the company, and wants to put pressure on managers to come to a decision.

‘Things move too slowly here. People discuss and decide, only to turn around and start to discuss again because somebody else had a different point of view.’
He said he has met, and has a ‘dialogue’ with Russian oligarch Mikail Fridman, who owns stakes in Russian operator Megafon and Turkish operator Turkcell, in which TeliaSonera owns 44 pct and 37 pct respectively, and in which TeliaSonera is trying to acquire majority interests.

Sweden to put network separation into law

A law giving Sweden’s telecoms regulator, the PTA, powers to impose a separation of network operations and retail services on TeliaSonera – and any infrastructure-based telco deemed to have significant market power (SMP) – is under review by the state’s legislation council. Under recommendation from the regulator, TeliaSonera has pre-empted the law by launching its new domestic infrastructure provider TeliaSonera Skanova Access on 1 January, to offer equal wholesale terms to rivals and its own operations. If approved, the new law, based on the recent model of UK incumbent BT’s functional separation, would apply to SMP network operators active in both wholesale and retail markets, offering LLU and bitstream broadband and voice line services. Although the measures are scheduled to take effect by 1 July, the Swedish government said it will not enact the legislation until the European Commission has finalised its own guidelines on functional separation.

Blackstone in government talks over Latvia telco bid

Blackstone has met newly elected Latvian Prime Minister Ivars Godmanis in a bid to persuade the government to reverse its decision to block the US buyout group’s 290m lats (€413m) bid for national telecommunications group Lattelecom.
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The Latvian Government, which granted provisional approval for Blackstone’s acquisition of a 51% stake in the business in August, shelved the deal following the election of the new Prime Minister last month. Godmanis confirmed the decision in a press conference yesterday.

The deal would be Blackstone’s biggest acquisition in the Baltic region.

A source close to Blackstone said yesterday’s talks with the new Prime Minister had been constructive, and that discussions were continuing. Another source added the process had become highly politicized due to the recent elections.

The government owns 51% of Lattelecom, with the remainder held by Nordic telecommunications group TeliaSonera.

Godmanis’ suggestion was for Blackstone to acquire TeliaSonera’s stake, but the government now planned to auction its 51% stake to the highest bidder. If Blackstone acquires the TeliaSonera stake, it would win the right to match the highest bid from the auction.

Godmanis also urged TeliaSonera to sell its stake in Lattelecom to fund the acquisition of Latvijas Mobilais Telefons, another Latvian phone group in which TeliaSonera had expressed interest.

Sweden to Separate Networks

It looks like Sweden will join the ranks of countries believing that creating a separate wholesale broadband access entity will spur innovation in domestic telecom markets. A law giving Sweden’s telecoms regulator, the PTA, powers to impose a separation of network operations and retail services on TeliaSonera or any other infrastructure-based telco deemed to have significant market power now is under review.

But TeliaSonera has seen the writing on the wall and preempatively launched a wholesale unit on its own. TeliaSonera Skanova Access now offers equal wholesale terms to rivals and its own retail operations.

If approved, the new law will emulate BT’s “functional” separation. Swedish regulators say they will wait to adopt the new rules when the EU has formalized its own rules on functional separation.

There’s a key challenge for North American regulators here. The grave potential danger of such structural or functional separation moves is that it will scare off investors who must provide the investment capital to build robust new optical access networks. As the trend continues to grow, not simply in Europe but in the Asia-Pacific region as well, we will accumulate a track record demonstrating whether, in fact, a capital strike is a realistic fear.

If functional separation can be made to work, if it continues to provide an attractive basis for investing capital in networks, pressure might mount on North American regulators to make similar moves. That will be especially true if market abuse were perceived to be occurring under the current “inter-modal” competitive regime that now prevails, under which competition between cable companies and telcos is expected to provide competitive benefits.