TeliaSonera honcho Kenneth Karlberg speaks

About a week ago, I was in Stockholm and had a chance to sit down for a video interview with Kenneth Karlberg, the head of TeliaSonera's Mobility unit and still (after all these years) the main man in talks with the Latvian government about privatizing the rest of Lattelecom and mobile operator LMT. Kenneth also talked about 4G and how things would be better for Estonia's Elion, now that it is 100 % owned by the Swedish group.

Blackstone withdraws from Lattelecom offer?

Edited on March 4 for some run on sentences :)

The Blackstone Group has sent a letter to the Latvian government indicating that its offer to buy the 49 % of Lattelecom owned by Sweden's TeliaSonera was based on Nils Melngailis remaining as the fixed network operator's CEO. This according to informed sources.

Since Melngailis has resigned, apparently under political pressure, the offer, logically, must be withdrawn. That means that the giant American private equity group is withdrawing from Latvia as an investment environment, not just the individual deal.

The initial management buy-out of 100 % of Lattelecom financed by Blackstone and a bank consortium was rejected for no particularly convincing reasons on January 17.  Melngailis and Blackstone made another Plan B bid for TeliaSonera's share with the hope that the government would auction off its 51 % share in a reasonable time with the private equity company the only likely buyer (at this point, some kind of MBO plan would be executed). The purchase would also have involved covenants giving full operational and strategic control of Lattelecom to management (keeping the government at arm's length).

Now the whole thing has fallen apart, TeliaSonera has neither an exit nor a way to move forward with Lattelecom and mobile operator LMT (which it controls directly and indirectly just over 60 %). 

The government has postponed for at least two weeks deciding on TeliaSonera's latest mildly sweetened offer to split Lattelecom into two companies -- a network wholesaler and services retailer --and to pay the same price of 500 million LVL (see the earlier post). 

My opinion -- this is the start of another round of muddling around and procrastination. The government either doesn't know WTF it wants or it has some byzantine, bizarre "Latvian" plan for putting whatever will be left of Lattelecom in a few years into the "right hands". Time will show. 

A half-mother forever?

The latest twist in the Lattelecom saga that I can discern from where I am -- vacationing in Orlando, Florida-- is that the government of Prime Minister Ivars Godmanis wants to keep the state's 51 % share of Lattelecom and let TeliaSonera do as it pleases with its 49 % -- preferably sell it.
What this means is that the Latvian government -- seriously -- is telling the Swedes to find someone to pay for sharing a bed with a proven capricious majority owner. Under Latvian law, the government has the right of first refusal, which takes us back to the situation before the MBO proposal, when TeliaSonera offered, in effect, to let Lattelecom be nationalized in return for getting 100 % of Latvian Mobile Telephone and even paying cash to the government. 

Latvia has a new goverment, but the muddling, bumbling and equivocating on the privatization of Lattelecom has not stopped. 

Is there a serious private investor -- a mutual fund, whatever-- never mind a telecoms operator, who would share owning and running a fixed-network only company with this kind of co-owner? Unlikely.  You have something that looks very much like a stranded investment, TeliaSonera. 

No chance of a Lattelecom deal in 2007

Latvia's acting minister of Economics and Justice Minister Gaidis Berzins (Fatherland &Freedom) has said there is no chance the present (disintegrating--JK) government will approve the Lattelecom management and employee buyout (MEBO).
The government is expected to resign on December 5, the same day that beleaguered Prime Minister Aigars Kalvitis has said he will step down. Kalvitis was under pressure to resign because of a number of political scandals and controversies unrelated to telecommunications privatization.
Lattelecom management led by CEO Nils Melngailis had hoped to seal the LVL 300 million deal involving The Blackstone Group as a equity partner by year's end. It now looks like Latvia could be under a caretaker government or facing political turmoil, perhaps including dismissal of the national legislature, the 100-member Saeima, well into 2008.
The political situation along with increasing uncertainly on financial markets around the world increases the liklihood that the Lattelecom MEBO will simply be muddled to death. See my earlier posts.

Lattelecom MBO not on the agenda

The proposed management and staff buyout of Lattelecom is not on the agenda of the November 6 meeting of the Latvian Cabinet of Ministers and it looks like this matter will be delayed indefinitely. Despite two valuations made by Ernst & Young and the Swedish-based investment bank Carnegie, the acting Minister of Economics Gaidis Berzins says that no official valuation of Lattelecom and Latvian Mobile Telephone (LMT) has been made (according to lengthy official tender proceedings to find the valuator, etc. etc.).

Berzins' Fatherland & Freedom Party has expressed serious reservations bordering on outright opposition to the MBO, as has the party's Member of the European Parliament Inese Vaidere, writing several opinion pieces in the Latvian media.

The postponement of the decision on the MBO is,  I think, the beginning of the end for this attempt to privatize Lattelecom. The matter will be dragged long into 2008, debated in a fog of bizarre conspiracy theories and wacko economics, and finally muddled to death. 

Lattelecom, LMT privatization memo finally signed

I now see that the Latvian government, TeliaSonera and Lattelecom have finally signed a memo of understanding on the privatization of Lattelecom and Latvian Mobile Telephone (LMT). The memo assumes that a final agreement will be signed on September 24, not September 12 as assumed earlier (the delay is due to scheduling considerations and vacations). This is yet another step toward the management buy-out (for around LVL 290 million) of Lattelecom and the sale of the remaining government stake in LMT to TeliaSonera.

This blog prematurely reported the signing of a memo last week :), but I was on the right track.

Latvian government offers TeliaSonera a privatization memo

CORRECTS AND REPLACES PREVIOUS VERSION

The Latvian government has presented a memorandum of undertstanding on the privatization of Latvian Mobile Telephone (LMT) and Lattelecom that it is ready to sign. A spokesman for TeliaSonera said, however, that negotiations were still continuing.
TeliaSonera, which now directly and indirectly controls just over 60 % of LMT would get 100 % control, while Lattelecom will be sold by both shareholders (TeliaSonera 49 %, the government - 51 %) to the management and staff of Lattelecom in a management buy-out. The latter is valued at around LVL 290 million.

More later, time allowing....

TeliaSonera honcho: it looks like a deal!

Despite a loony-tunes document by the Ministry of Economics that seemed to say all deals surrounding the privatization of Lattelecom and Latvian Mobile Telephone were off, it looks like the deals are going ahead and will be sealed as early as September 12, with closing before the end of the year. Those were the signals coming out after a meeting between TeliaSonera honcho Kenneth Karlberg (who has been at this for around four years or more) and representatives of the Latvian government. I got to sit down and talk to Kenneth after the meeting. Here is my videoblog:

Click To Play

Government waffles again on telecom privatization

LJust when it seemed that agreement had been reached in principle to sell the remaining state holdings in Latvian Mobile Telephone (LMT) to TeliaSonera and to let Lattelecom be privatized by a management/staff buyout, the Latvian government decided July 24 to extend the deadline for preparation of privatization rules for LMT to October 1.

The real shocker is in an explanatory document appended to the decision:

"As, for the time being, no agreement has been reached by the parties involved concerning the future disposition of the state holdings in ...Lattelecom and ...Latvian Mobile Telephone, the draft protocol decision foresees extending the deadline for completing the task to October 1 of this year." (Emphasis mine).

What this seems to say is that all deals are off, or at least it could be understood that way. In fact, both the government and the half-mother TeliaSonera had indicated agreement in principle to a scheme that has been discussed for more than a year, namely, that the Swedes get LMT, and someone else gets Lattelecom (in the latest alternative, the management and staff). The half mother has also given a nod to the management buyout, though it may have hinted at a last minute higher offer for the whole package (TeliaSonera has always wanted to buy 100 % of both Lattelecom and LMT, but given an unavoidable choice, it would take LMT alone).

The whole bizarrely ambiguous statement comes two days before TeliaSonera honcho Kenneth Karlberg is due in Riga for talks with the government. Presumably these would have been about choreographing the deal -- waiving first refusals, detaching the state and half-mother's indirect shares of LMT held by Lattelecom, finalizing the price of everything. In this sense, there was no formal, written agreement -- work should be starting toward this, but certainly there was agreement in the common-sense understanding of the concept.

Certainly, the half-mother has reason to worry -- the half-mother's , as it turned out, half-blood press honcho called me and asked for a copy of the Latvian language documents so he could show them to his mother. This seemed very strange for a man called Niklas Henricson, until it turned out that Niklas' mother is Latvian. That is just a curious aside and a warning -- we are everywhere :). Niklas, alas, has not grown up in Sweden learning Latvian.

Anyway, one way or another, the latest and strangest from the Latvian government should be on Kenneth Karlberg's laptop at his vacation residence pretty soon.

And--one more thing... The Latvian government has ordered a tender for another appraisal of Lattelecom and LMT, even though Minister of Economics Jurijs Strods says he is sure the value of Lattelecom has not diminished. Since both companies are not traded, appraisals, such as were made last year by two different firms, Ernst & Young and Carnegie, are expensive educated guesses at best. Well, it has been a good year for the appraisal business in Latvia, that's for sure.

Whatever is really going on, the whole privatization process has, yet again, been destabilized and dragged on, probably well into 2008, even as Nils Melngailis, Lattelecom's CEO, looks to put together a consortium to finance the MBO (assisted by Lazard). That leaves Lattelecom adrift with, as Bob Dylan said, "no direction home" for at least a year, nor even any idea who home" is or will be.

TeliaSonera ousts Anders Igel

TeliaSonera announced on June 12 that it was searching for a new group CEO. The present CEO, Anders Igel, will leave the company on July 31. This was a pleasant way of saying, Anders, you're fired! There had been mutterings about this in the Swedish press for some time.

How does this affect Latvia? First, it gives the government an opportunity to, yet again, procrastinate on any decision to privatise Lattelecom and to finally sell all of Latvian Mobile Telephone (LMT) to TeliaSonera.
The other aspect is not so obviously obvious. TeliaSonera needs a new group CEO, probably an international manager, not necessarily a Swede (for who knows who will own TeliaSonera in a few years), as well as someone familiar with its growing Baltic and former USSR markets.
Perhaps TeliaSonera need look no further than Nils Melngailis, the 40-ish, Latvian-American, internationally-experienced (IBM Business Intelligence, Coopers & Lybrand) CEO of Lattelecom. After all, with the company mired by the government in indecision about who will own it, the role of Melngailis and other talent at Lattelecom is being reduced to uncertain short-term stewardship rather than nimble, strategic management. The management buy-out idea did not come out of nowhere, it was, in one aspect, a pressure tactic to get the government to act.
We may see a miracle and actually get a decision, but more likely, we will get procrastination. So don't ask them to take your name off the short list in Stockholm, Nils (and Stockholm, do look at your own 49 % owned talent).

Lattelecom privatization may be decided June 12

The issue of Lattelecom's privatization may be decided at the regular meeting of the Latvian government on June 12. Nothing has appeared on the agenda, as yet (evening, June 11), but there appear to be three choices before the Cabinet of Ministers.

1) To approve the management/staff buy-out proposed by Lattelecom's management and, apparently, having the tacit approval of the half-mother, TeliaSonera.

2) to hold a closed auction (by invitation) to sell Lattelecom to a major international telco (assuming any show up) in the hopes of getting the maximum price.

3) to sell both Lattelecom and Latvian Mobile Telephone (LMT) to TeliaSonera after all, reversing the government's previous position that Lattelecom would never be sold to the Swedes.

Right now, the government is said to favor 2), the closed auction, claiming that the management buy-out (MBO) would contravene Latvian law. Strange, where was that law when the a government commission tentatively approved the MBO idea some weeks ago. One wonders...

The half-mother Agonistes in Riga

Anders Igel, top honcho of TeliaSonera, the half-mother of Lattelecom, and Kenneth Karlsson, head of Mobilty services, were in Riga to make a donation to the Stockholm School of Economics in Riga. They took some time to sit down with both of my identities (Latvian language blogger for nozare.lv and Englis-language videoblogger for this blog). As I a pressed for time -- I have to go to my summer house and attempt to rig some wireless internet there as well as resupply a friend of my mother-in-laws who is watching the place while my wife, kid and mother-in-law are in Malaga-- I have linked to the Latvian audience version of the videoblog. So the intro titles and subscripts are in Latvian, but the interview is in English;

The half-mother taken aback

I get the impression that TeliaSonera, the half-mother of Lattelecom, has been taken aback by the apparent failure of to get a resolution, any resolution, of its efforts to acquire 100 % in at least Latvian Mobile Telephone (LMT). Instead of pressing ahead with a deal, the Latvian government is m(or is there a better letter?)ucking around with variations, alternatives and hesitations that essentially take everything back to square 1.
I think the Swedes are wondering what to do now. They seemed to have come very far:
1) accepting the fact that the government would never let them have Lattelecom and being prepared to trade their 49 % of Lattelecom for the true prize, LMT.
2) making an appraisal of both companies.
3) getting ready to sit down and discuss:
a) how to reconcile two somewhat (but not insurmountably) different appraisal values
b) how to set a price
c) how and when to do the deal.

I think the half-mother has gotten used to Latvian weirdness when the government let lapse a LVL 9 million offer in 2004 to be paid by TeliaSonera to make a deal, any deal, by year end. It will soon be three years. But at some point, TeliaSonera may start wondering how far it is from having a huge stranded investment in at least one of its Latvian companies. What else can you consider it if nothing happens and the goal posts are uprooted just as one team approaches the goal?
Lattelecom, for its part, would probably not mourn the departure of the Swedes. well, not very deeply. They believe that TeliaSonera is sometimes slower to make decisions at a time when corporate strategy may have to be reviewed on a quarterly basis. At the same time, Lattelecom would probably prefer the Swedes as owners to being wholly owned by politicized domestic crazies, which, given the way things are run in Latvia, is a real possibility.
As I have already written, the new non-socialist government in Sweden is set on fully privatizing TeliaSonera and a number of other state holdings, so the half-mother should be looking over her shoulder as well as at developments in Latvia. Any number of huge beasts could be looking to eat up the cash-fat medium sized fish that TeliaSonera is, by global comparison.

Weird new schemes for divesting LMT, Lattelecom

TeliaSonera, aka the half-mother, can continue wringing her hands and pushing ahead any date when there will be some kind of final resolution of ownership of Lattelecom (the half-mother owns 49 %) and Latvian Mobile Telephone (LMT--where the half mother formally holds 49 %, but actually is a bigger mother through the 23 % that Lattelecom holds).
The excessively well informed Diena reporter Baiba Rulle writes that the government is considering an alternative scheme to current swap proposal (49 % of Lattelecom plus cash for the remainder of LMT) that has been under discussion since springm 2006.
The alternative scheme would involve breaking the so-called Umbrella Agreement of 1994 and requiring TeliaSonera to sell its 49 % holding in Lattelecom to a third party, preferably financial investors. At the same time, the Latvian government would be free to sell its 51 % of Lattelecom in a public share offering unfettered by the first-refusal rights of TeliaSonera under the Umbrella Agreement. That appears to be the point of annulling the much criticized document. However, as I understand it, the Latvian laws on corporations would require a first refusal right to TeliaSonera in any case.
Assuming the government gets its way, Lattelecom would be sold by both parties on the stock exchange, while the government would sell the rest of LMT to the ex-half mother, presumably, for cash. This might be a better solution for Lattelecom than having it owned by the Latvian government (whose core business should not be running a telecoms business) and it would bring a lot of cash into the state treasury.
However, the present scheme under discussion would also involve a cash payment in addition to a swap of Lattelecom holdings for the rest of LMT, and it would leave the Latvian government with the opportunity to sell 100 % of Lattelecom on the stock exchange if it chose to do so. Now the government seems to want to saddle TeliaSonera with selling its 49 % of what could be seen as an unattractive fixed-network-only operator. It is also rather presumptuous of the government to dictate what a foreign company may or may not do with its property -- in this case, 49 % of Lattelecom -- by urging it to sell to the holding to private financial investors.
One scenario that could arise, assuming the half-mother goes along with the scheme, is that it arranges to sell its holdings of Lattelecom to a future new owner of TeliaSonera, since the Swedish group itself is likely to be 100 % privatized in the near to medium term. In other words, TeliaSonera sells its 49 % of Lattelecom to say, Deutsche Telekom or Telefonica, who then buys into TeliaSonera and picks up the rest of Lattelecom on the stock exchange when the government sells its 51 %. At the end of the day, the 100 % private TeliaSonera and its new foreign parent control both Lattelecom and LMT, which is what TeliaSonera has wanted all along.