US investment bank J.P. Morgan is entitled to receive 300,000 euros per month for preparing the acquisition of shares in Latvian telecommunications companies Tet and Latvijas Mobilais Telefons (LMT) until the purchase agreement is signed, TV3’s investigative programme Nekā personīga reported on Sunday.
According to the programme, the bank is entitled to 900,000 euros for three months of work this summer, while fixed fees for specific assignments amount to another 1.1 million euros.
However, the bank would receive its largest payment, consisting of bonuses for attracting an investor and securing financing, only if the transaction is successfully completed.
By the end of August, a total of 4.4 million euros had been spent on consultants hired to prepare the acquisition of Tet and LMT shares. Nevertheless, the deal remains unfinished, and no investor has been secured.
The programme reported that this week,
the state-owned asset management company Possessor received consultant invoices totalling 740,000 euros and made additional payments of 612,000 euros.
Preparations for the transaction were divided into two stages.
During the first stage, known as Sprint, consultants assessed potential transaction scenarios, receiving 1.44 million euros for their work.
The second stage, called Milda, involved conducting due diligence on the companies and preparing the acquisition of their shares.
By the end of August, the costs of this stage had reached 3.04 million euros.
According to information obtained by Nekā personīga,
financial, tax, legal, technical and commercial due diligence on the companies has been completed.
However, no purchase agreement has been signed, and the memorandum of understanding between the Latvian side and Swedish telecommunications company Telia expired in July.
As previously reported, Prime Minister Andris Kulbergs (United List) announced on the 30th of September that several million euros had been wasted on preparing the transaction and called for the termination of contracts with consultants.
At the time, the prime minister claimed that 13.6 million euros had been spent, although that amount would only have been reached if the project had been completed by the end of the year.
Nekā personīga reported that following the prime minister’s announcement, the consultants’ work and payments were suspended on the 1st of October.
Kulbergs confirmed to the programme that the existing transaction process had been halted because he considered the approach taken unacceptable.
The prime minister believes that LMT should be merged into Tet, after which a strategic investor should be brought into the combined company.
Economy Minister Viktors Valainis (Union of Greens and Farmers) told the programme that he believes the prime minister had been incorrectly informed about the transaction preparation process.
Valainis also claimed that he had not discussed the matter with Kulbergs.
The economy minister defended the consultants’ work, arguing that due diligence and company valuations would be necessary regardless of the transaction structure ultimately selected.
He also pointed out that
new business strategies had been developed for the companies, which would allow informed decisions to be made about their future.
Commenting on Kulbergs’ proposal to merge LMT into Tet, Valainis claimed that such an approach would effectively mean handing both companies over to the Swedish side.
Meanwhile, the prime minister’s adviser Valters Bolevics told the programme that he considers the existing transaction structure flawed.
Under the current plan, Latvia would acquire Telia’s shares, subsequently offering some shares on the stock exchange and selling others to a private investor.
Bolevics believes the Latvian side should also seek a lower acquisition price, arguing that Telia wants to leave the Latvian market.
Nekā personīga also reported that the prime minister’s office had attempted to secure a position for Kulbergs’ adviser Bolevics in the company that was planned to be established for the merger of Tet and LMT.
According to the programme’s information, Possessor had insisted on the appointment, while Latvenergo and the Latvian State Radio and Television Centre (LVRTC) opposed the proposal.
The programme also established that
the transaction’s supervisory working group had not held any meetings since the summer, although meetings had previously been scheduled every two weeks.
Furthermore, the Ministry of Economics had reportedly failed to provide the government with regular updates on the transaction’s progress.
Bolevics said that next week the Ministry of Economics would be required to present the government with a report detailing the funds spent on consultants and the work completed.
The government would then decide on the next steps.
As previously reported, the Latvian government has been negotiating with Telia for several years over the acquisition of the Swedish company’s shares in Tet and LMT.
Telia has signed a memorandum of understanding with Latvia, Latvenergo and LVRTC concerning the sale of all its shares in the two telecommunications companies.
Currently, the Latvian state, through Possessor, owns 51% of Tet, while Telia’s subsidiary Tilts Communications holds the remaining 49%.
In LMT, Telia and its subsidiary Sonera Holding jointly own 49%.
The Latvian side holds the remaining shares through several entities: LVRTC owns 23%, Tet holds another 23%, and Possessor owns 5%.
Following the acquisition of Telia’s shares and the involvement of a strategic investor, the proposed ownership structure could give each of the four parties involved — Latvenergo, LVRTC, Possessor and the strategic investor — approximately 25% of the shares in both companies.