Lattelecom Group (Latvia) - Oct 2007

The Blackstone Group has invested $178m (Lt 90m), as part of a $575m management buyout and privatisation of Latvian telecoms company The Lattelecom Group. The sellers are the Latvian Government (51%) and Swedish telecoms operator TeliaSonera (49%). At the completion of the transaction, Blackstone will hold 51% of the shares. It is understood that the transaction process was highly competitive. More than 10 private equity funds and 20 banks offered to finance the deal, but the timing for financing became a large concern. The recent turbulence in the market made it more difficult than expected to get leverage for the deal. The investors were also concerned about the overheating of the Latvian economy. In the end, Unicredit, Nordea, Parex Bank and DnB Nor were chosen to raise approximately $395m (Lt 200m) in euro and Latvian denomination debt. The management will also invest around $19.8m (Lt 10m) to cover the expenses with the transaction and to finance its 49% stake in the company. The management buyout follows the Latvian government’s refusal in 2006 to allow TeliaSonera the controlling stake of both Lattelecom and LMT, (Latvijas Mobilais Telefons SIA), the Latvian mobile operator, The refusal was based on local competition regulations. The government agreed to privatise Lattelecom through a MBO, which was priced at the top end of valuations (made by Ernest & Young and Carnegie). To be able to sell the whole company to the management, the government had to acquire the 49% stake held by TeliaSonera and subsequently sell it to management for $575m. After the refusal of granting TeliaSonera controlling stakes, the relationship between the Swedish telecoms operator and the Latvian Government became very tense. According to press reports, TeliaSonera took the Government to arbitration, claiming compensation for the shortening of its fixedline monopoly because of Latvia’s access to the EU. However, TeliaSonera accepted the Government’s decision and was given the right to take 100% ownership of LMT as part of the Lattelecom sale. The deal is subject to competitive and regulatory approval and is expected to close in November. Rumours regarding the sale of Lattelecom have been circulating in the Baltic private equity market for some time, with Nordic unquote” reporting on the issue in May. (June 2007, page 18). The deal is subject to competitive and regulatory approval and is expected to close in November.

Debt structure

The management also secured financing from Unicredit, Nordea, Parex Bank and Dnb Nor.

Company

The Lattelecom Group is a provider of electronic communications services and offers solutions for home, small- and medium-sized businesses, state and municipal institutions and corporate clients. The company is made up of six companies – SIA Lattelecom, Lattelecom BPO, Citrus Solutions and Lattelecom Technology, which has the subsidiarys Baltic Computer Academy and LSS. In 2006, the company reported revenues of $284.2m (Lt 143.7m), EBITDA of $117m (Lt 59.2m) and an operating profit of $57.7m (Lt 29.2m). At the end of 2006, the company had 2,941 employees.

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• Topics
• CEE
• Buyouts
• Technology
• Latvia