Lawyer: if LMT and Lat­t­ele­com are merged, Latvia will lose the most

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Con­tra­dic­tory opin­ions about the merge be­tween Latvi­jas Mo­bi­lais Tele­fons and Lat­t­ele­com have be­come es­pe­cially loud in re­cent weeks. If the merge is car­ried out, Latvia will lose the most, says part­ner of Vil­gerts law firm Julija Jerneva.

She be­lieves the merge of LMT and Lat­t­ele­com is less than ben­e­fi­cial for the state as a share­holder. «By al­low­ing the merge, the coun­try would lose con­trol, whereas Telia Son­era Group would gain con­trol­ling pack­age of shares. This would also mean a con­sid­er­able re­duc­tion of the value of shares owned by the state,» says Jerneva.

Swedes’ de­sire for con­trol through merge is clear as day

«It is clear that this sce­nario would ben­e­fit the Swedish side, which ex­plains the re­cent clash be­tween LMT coun­cil rep­re­sen­ta­tives,» the ex­pert says. At the same time, she says that LMT Coun­cil chair­man and rep­re­sen­ta­tive of Telia Com­pany AB Claes Nykan­der had re­acted sharply to LMT Pres­i­dent Ju­ris Binde’s crit­i­cism of the idea to merge LMT and Lat­t­ele­com, say­ing that it is un­ac­cept­able, does not rep­re­sent the opin­ion of the ma­jor­ity of coun­cil mem­bers and «ques­tions the man­age­ment’s abil­ity to hon­estly rep­re­sent in­ter­ests of all LMT own­ers and man­age the com­pany in the fu­ture». Mean­while, an­other LMT Coun­cil mem­ber – Anri Leima­nis – has said that Nykan­der’s an­nounce­ment came as a sur­prise, be­cause the coun­cil has never de­cided on such a mat­ter.

«Look­ing from the side­lines, such pub­lic laun­dry-toss­ing and threats com­ing from Telia Son­era Group to pun­ish those who crit­i­cize the idea to merge LMT and Lat­t­ele­com one gets the im­pres­sion of a hint of ner­vous­ness com­ing from Swe­den.

It seems Telia Son­era Group’s in­ter­est in­cludes merg­ing the two com­pa­nies no mat­ter the cost and in­creas­ing its al­ready enor­mous in­flu­ence,» the ex­pert com­ments.

At first glance, KPMG’s pro­posal to form a com­pany af­ter merg­ing LMT and Lat­t­ele­com in which 30-40% of shares are pro­vided to the big­gest share­hold­ers – Telia Son­era and Lat­vian state – and the rest are re­leased on the ex­change would re­solve the prob­lem of Swedish dom­i­nance. Un­for­tu­nately, a closer look re­veals a lot more, says the ex­pert.

She adds: «It is not about mas­sive in­vest­ments of time and money needed to re­al­ize the merge in ac­cor­dance with KPMG’s pro­posal. Only af­ter care­fully eval­u­at­ing both com­pa­nies does it be­come clear how much of the newly formed com­pany would be­long to Telia Son­era Group and how much – to the Lat­vian state.»

The ex­pert con­tin­ues: «If the eval­u­a­tion shows that LMT is more valu­able than Lat­t­ele­com, Telia Son­era Group will get a con­trol­ling pack­age of shares in the new com­pany. For Telia Son­era Group to refuse the con­trol­ling pack­age and sell shares for un­pre­dictable prices would be il­log­i­cal. This is why to re­al­ize KPMG’s pro­posal for equal divi­sion of shares and make sure Swedes vol­un­tar­ily sign the new agree­ment Latvia would have to pay a con­sid­er­able com­pen­sa­tion. Noth­ing is men­tioned about this in pub­lic. The same ap­plies to the ques­tion as to who will cover Telia Son­era Group’s losses from merg­ing the two com­pa­nies (be­cause the Swedish side will def­i­nitely de­mand that).»

Com­pe­ti­tion and res­i­dents will be on the los­ing side as well

Those in sup­port of the idea of LMT and Lat­t­ele­com merg­ing en­thu­si­as­ti­cally claim that there is no other way and the two com­pa­nies have to merge. Oth­er­wise, they say, other mar­ket play­ers may form an in­te­grated op­er­a­tor that would take away part of the mar­ket from LMT ant Lat­t­ele­com and that Latvia would suf­fer con­sid­er­able losses as a re­sult, says the ex­pert.

From a com­pe­ti­tion stand­point, such con­cerns are com­pletely flat and un­jus­ti­fied. There is not a sin­gle com­pany in Latvia with such a large share in in­ter­net, tele­vi­sion, mo­bile and fixed com­mu­ni­ca­tions to match LMT and Lat­t­ele­com to­gether. This means that should LMT and Lat­t­ele­com join forces, a new player would be cre­ated with a num­ber of con­sid­er­able ad­van­tages.

«Such a mas­sive eco­nomic power dom­i­nat­ing the mar­ket would def­i­nitely weaken com­peti­tors and force re­tail prices to rise. LMT and Lat­t­ele­com com­peti­tors likely will not be able to form a size­able of­fer to match them in the near fu­ture. Be­cause of that, it is naïve to think such a mas­sive com­pany will not be tempted to abuse its power at the ex­pense of clients and con­sumers,» the ex­pert con­tin­ues.

The ex­pert also men­tions that «even now it can be said that fol­low­ing this road would re­sult in Lat­vian con­sumers be­ing forced to hope for a new telecom­mu­ni­ca­tion gi­ant en­ter­ing the coun­try in the fu­ture to bal­ance the mar­ket and putting an end to the dom­i­nance of the merged com­pany.»

Look­ing at pub­licly avail­able in­for­ma­tion about the merge be­tween LMT and Lat­t­ele­com, only one ques­tion ap­pears: «Who would ben­e­fit from it?» It is clear this merge is not ben­e­fi­cial to mar­ket par­tic­i­pants, Latvia or res­i­dents, the ex­pert notes.

In­de­pen­dent ex­perts say it is nec­es­sary to merge LMT and Lat­t­ele­com

It is worth men­tion­ing that Telia Com­pany val­ues Lat­vian gov­ern­ment’s de­ci­sion to pub­lish KPMG’s assess­ment of the gov­ern­ment’s strat­egy in re­la­tion to own­er­ship rights in LMT and Lat­t­ele­com. «We be­lieve that trans­par­ent and open de­bates are the way to go to re­solve this mat­ter. We anx­iously wait for the au­di­tor’s re­port,» com­pany rep­re­sen­ta­tives say.

«As far as we are aware, KPMG has de­tailed in the re­port that the cur­rent own­er­ship struc­ture is sub-op­ti­mal and that merg­ing of the two com­pa­nies is sup­ported – it is an ap­proach Telia Com­pany has been propos­ing for a long time as the only so­lu­tion to se­cure sus­tain­able fu­ture for LMT and Lat­t­ele­com,» ex­perts say.

At the same time, Telia Com­pany’s rep­re­sen­ta­tives notes that the com­pany is pre­pared to be­come in­volved in a con­struc­tive and open di­a­logue with all sides. The com­pany hopes for a soon con­clu­sion of in­ter­nal dis­cus­sions.

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