Vivendi makes EUR2.5 billion offer for PTC stake - but is it just playing a game?

27 Sep 2006

As reported here yesterday, reports that Vivendi has offered EUR2.5 billion (USD3.18 billion) for Deutsche Telekom’s (DT’s) 49% stake in Polish cellco Polska Telefonia Cyfrowa (PTC) have been confirmed, according to the Financial Times. The offer represents the latest twist in a seven year battle between the two companies over the ownership of the Polish telecoms operator. Until June this year, DT owned 49% of PTC with 48% held by financially trouble local conglomerate Elektrim. In that month however, a Vienna-based arbitration tribunal ruled that a call option by DT was valid, raising DT’s stake to 97%. Vivendi challenged the ruling, claiming that the shares attributed to Elektrim were in fact held by a joint venture between it and Elektrim, known as Elektrim Telekomunikacja (ET). The dispute dates back to 1999 when Vivendi agreed to invest EUR1.8 billion in PTC via ET. But the deal was done without the consent of DT and in 2004 the arbitration tribunal in Vienna ruled Elektrim’s sale of part of its stake to Vivendi as invalid. This opened the door for Elektrim to take back for free the PTC shares held by its joint venture with Vivendi. However, Elektrim’s failure to retake control of the disputed shares within a two-month deadline allowed DT to exercise its call option and buy Elektrim’s stake. Elektrim claimed it was unable to retake control of the shares because of delaying tactics by Vivendi, and plans to sue the French company for damages. The Viennese tribunal has still to rule on the final price DT will have to pay for the additional stake; Elektrim is hoping for as much as EUR580 million, still far below the EUR2.4 billion – EUR2.6 billion PTC says it is worth. Following various legal set backs this month, Vivendi was forced to cut the balance sheet value of its indirect investment in PTC from EUR531 million to zero, leading to its latest bid.

DT has thus far declined to comment on Vivendi’s offer, although the perception amongst the financial community is that the Germans will regard the bid as baseless because it believes the courts have already settled the ownership issue. Vivendi has refused to recognise either of the arbitration rulings and the French group has filed lawsuits, challenging the legality of these transactions. Some industry watchers claim Vivendi’s offer is nothing more than tactical stalling, claiming that it is simply seeking to bid up the price that DT would have to pay for Elektrim’s stake.

Poland, Deutsche Telekom (DT), T-Mobile Poland