Lattelecom CEO comments MBO rejection

Lattelecom CEO Nils Melngailis comments the rejection of the MBO proposal (would have been the largest transaction in Latvia to date). I filmed this while Nils was speaking to a journalist from Bloomberg News.

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My personal view: It is time for Nils to move on in his career. There is no point in being a masochist in a business environment (Lattelecom's state owner) that is more like a monkey house or an insane asylum that a place where rational choices are made.

Latvian government kills Lattelecom MBO

The Latvian government has rejected the LVL 290 million management and staff buyout proposed by Lattelecom CEO Nils Melngailis and financed by The Blackstone Group and a consortium of banks.
Prime Minister Ivars Godmanis proposed, instead, that TeliaSonera sell its 49 % holding in Lattelecom to Blackstone or someone else, getting a chance to buy mobile operator LMT in return. At some undefined time in the future, the government will then auction its 51 % share of Lattelecom to a select shortlist of serious European Economic Space (European Union plus Switzerland and Norway) companies but NOT TeliaSonera.

First impression-- I was right that this deal would be effectively killed by the government.
The government's scheme is, to say the least, bizarre. It rejects the only "serious EU telco"that has been trying to buy Lattelecom for the past five years on specious anti-monopoly grounds. There is no one I can imagine who would bid for Lattelecom, a fixed-network only company 49 % owned by god-knows-who (if Blackstone, as one would expect, politely declines to buy in and have to deal with these lunatics).

Look for Blackstone and Nils Melngailis to bow out soon. TeliaSonera may make one last bid, but probably write off its holdings in Lattelecom as a stranded investment.
The company will flounder for a while, no one will come to the auction, and the state will have effectively screwed up a potentially powerful Latvian company.

I am somewhat saddened to have been right...

Another day, another idea...

So now it seems the Latvian government, having defacto rejected the management and staff buy-out of Lattelecom (the new government has not even set a date for talking to CEO Nils Melngailis about it, a subtle way of showing the middle finger to him and his ideas on top of the previous government stripping the man of his Lattelecom chairmanship), and having dismissed a proposal to privatize Lattelecom through the Riga Stock Exchange, then having said it wants to keep the status quo and hope TeliaSonera finds someone to buy its 49 %, now says it wants to talk to TeliaSonera again.
Well, Foxtrot Foxtrot Sierra*, where was the Latvian government in 2004, when TeliaSonera offered to pay something like SEK 9 million (or maybe it was USD) just for starting talks with the Swedes by the end of that year?? Nothing happened. Nor did anyone hold any kind of talks until 2006, when the sides agreed to do separate valuations of Lattelecom and mobile operator LMT in order to go ahead with a swap of TeliaSonera's holdings in Lattelecom for the rest of the state's share in LMT. Then that deal was never done. Then came the MBO proposal, also effectively dismissed.

So now what?

1) Nils should seriously consider working for someone who is not majority owned by a wacko banana republic loonoid government.
2) TeliaSonera should write off its 49 % in Lattelecom as a stranded investment that may yield a few more dividends.
3) TeliaSonera should focus on making LMT a full spectrum, mostly wireless electronic communication service provider, including fixed wireless phones, high speed wireless internet (HSDP, WiMax), wireless cable TV, and wireline broadband (fiber to the home) where possible

*for fuck's sake

A last chance for the half-mother? Or sue the bastards?

Latvia's acting minister of economics and minister of justice in the lame-duck government Gaidis Berzins has said that Sweden's TeliaSonera might still have a chance at acquiring Lattelecom, the fixed line operator, where it is presently a 49 % half-mother. Berzins said this in a radio interview on December 11, according to media reports.
Berzins said the next Latvian government (most likely a mash-up of the present, departing one) would have to decide on whether to go ahead with a management and employee buy-out (MEBO, if you wish) proposed by Lattelecom managing director Nils Melngailis, who has essentially been fired as chairman of the Lattelecom management board.
This can only be seen as yet another bizarre twist in the saga of Lattelecom. A proposal by TeliaSonera to buy both companies -- Lattelecom and the mobile operator Latvian Mobile Telephone (LMT) has been on the table for several years and has been delayed and muddled by the Latvian government ever since.
Last year, the government told TeliaSonera that it would not be allowed to buy Lattelecom, so the Swedish group proposed swapping its shares of Lattelecom for the remaining shares in LMT and setting a final price for the whole deal after independently valuating both companies. This was done last year, but the government muddled away its chance to nationalize Lattelecom and get some cash for LMT as well.
Now Berzins and the Latvian Privatization Agency (which formally holds the state's 51 % share of Lattelecom) have essentially torpedoed the MEBO and pushed Melngailis toward inevitable resignation from Lattelecom.
As things now stand, Lattelecom, at best, is a gefundenes Fressen (a meal discovered lying around for those who don't know German) for TeliaSonera, which had, essentially, written off the idea of owning any fixed-network assets in Latvia and was preparing to concentrate its efforts on LMT as a full-spectrum service wireless company once the MEBO went through.
In my view:

1) TeliaSonera should ask for a new valuation of Lattelecom (minus Melngailis) and then decide whether it wants to buy.

2) Maybe it should press the government to nationalize Lattelecom so as to hasten its acquisition of 100 % of LMT. That is, it should put up its 49 % for sale triggering the state's right of first refusal so the government either puts up or shuts up.

3) It should not, at the end of the day, rely on any promises or representations by the Latvian government and perhaps consider some form of legal action to force a decision. I think nothing else will work for the foreseeable future.

Lattelecom CEO fired, essentially...

The shareholders of Lattelecom (Latvian government 51 %, TeliaSonera 49 %) declined to extent the mandate of Nils Melngailis as managing board chairman of the company. He will continue as managing director, but the move is seen as a clear expression of no-confidence in his plans for a management and employee buy-out of Lattelecom. The decision also effectively torpedos the 300 million LVL deal which depended on Melngailis and his team continuing to run the company. Among the intended investors in the MBO was The Blackstone Group of the US, one of the world's largest private equity companies.

Lattelecom CEO's fate in the balance

The owners of Lattelecom, TeliaSonera (49%) and the Latvian government (51%) were discussing on November 30 the fate of CEO Nils Melngailis and two other executives whose mandates expire December 10. A decision, based on the recommendations of the owners, will come next week (after December 3) at the earliest.
According to my sources, the Swedes, by not objecting to Melngailis plans for a management and staff buy-out of Lattelecom have indirectly declared that they want to keep Melngailis as CEO and not upset the status quo. TeliaSonera can only gain by getting out of its nearly-stranded investment in the fixed-line operator and getting a full 100% of Latvian Mobile Telephone (LMT) The government, however, seems to be considering dumping Melngailis, possibly as a way to back out of the MBO for reasons, so to speak, that lie beyond conventional reasoning.
The deal has already been shaky since the Latvian government's present crisis (prime minister Aigars Kalvitis has set an on-again, maybe off-again resignation date of December 5), which arose for reasons unrelated to the Lattelecom deal. If it goes down (rather than goes down :) ), Melngailis would resign anyway.
As to what happens next - I would say -- Nils gets an international position somewhere, with the usual hassles of moving residence and family, while Lattelecom faces the consequences of what can only be described as a typical, but in this case, very large-scale Latvian clusterfuck. TeliaSonera continues to sing the role of the half-mother Agonistes in this increasingly bizarre telco opera.