The Latvian government appears to have decided to privatize Lattelecom by swapping its shares in mobile operator LMT for the 49 % of Lattelecom held by TeliaSonera (the half-mother). The Swedish stake will then be sold to a new investor, most likely The Blackstone Group, a US private equity company.
The decision was announced over the objections of a coalition partner, the Fatherland & Freedom party, whose Minister of Economics Kaspars Gerhards would prefer to have 100 % of Lattelecom put up for auction by both current stakeholders.
The government has also indicated that it does not want to divide Lattelecom into wholesale and retail units, a condition TeliaSonera insists upon. The European Union is expected to mandate such a functional seperation for telco operators soon, and TeliaSonera, British Telecom and Telecom Italia have already done so voluntarily.
My guess -- the shakily backed government plan will fall apart either because of political dissension or the non-acceptance of terms by TeliaSonera. According to some sources, Prime Minister Ivars Godmanis is ready to let everything go back to "square one"where things stay as they have been, that is, TeliaSonera remains a minority stakeholder in Lattelecom and an indirect holder of more than 60 % in LMT. In other words, the Swedes will remain reluctant and restricted owners of companies they want to either buy 100 % or divest 100 %, but these options will be blocked by the government.
Another stumbling block for the deal is that Blackstone will surely demand an airtight management agreement in order to take less than a controlling stake in Lattelecom. That means that all strategic and management decisions will be made by managers appointed by Blackstone, with the government kept at arm's length. The government is unlikely to accept this, so the deal may collapse on that note.
And on we go...