Tuesday, January 29, 2008

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.

1 comment:

Artis Celmiņš said...

agree.