Lattelecom management seeks private equity participation

12 Jul 2007

Private equity funds and banks are showing great interest in financing the LVL290 million (USD568 million) management buy-out of Lattelecom, according to Nils Melngailis, the company’s chief executive. Earlier this month the Latvian government agreed a plan to buy back a 49% stake in the fixed line operator from TeliaSonera. Simultaneously, it aims to sell the whole company to the management for LVL290 million, at the top end of valuations made by Ernst & Young and Carnegie, the Nordic investment bank. Lattelelecom management has until the beginning of September to raise the finance.

As part of the transaction, TeliaSonera will take 100% ownership of LMT, the largest domestic mobile operator by subscribers, by giving the state about LVL130 million plus its stake in Lattelecom. Overall, the Latvian state should receive LVL420 million for its stakes in both telecoms companies. TeliaSonera already has management control of LMT through a 49% direct shareholding and its stake in Lattelecom, which owns 23% of the mobile operator. The remainder of LMT’s shares are in state hands. Last year the government refused to allow TeliaSonera to take control of both Lattelecom and LMT on competition grounds. Relations between the two have been tense since TeliaSonera took the government to arbitration, in a case that is now settled, claiming compensation for the shortening of its fixed line monopoly because of Latvia’s accession to the European Union in 2004.

Lattelecom’s management, which met potential investors in London this week with its adviser Lazard, aims to raise at least 25% of the purchase price from private equity funds and the remainder from banks. ‘We plan to make significant capital expenditures over the next few years so we must be careful not to overburden the company with debt,’ Mr Melngailis, told the Financial Times.

Latvia, Tet (Lattelecom Group)