The government has three scenarios on how to move forward on the issue of the future of technology companies Tet LLC and Latvijas mobilais telefons (LMT) LLC, Prime Minister Evika Siliņa told Latvian Television’s programme “Rīta panorāma” in an interview.
She did not elaborate on these scenarios, explaining that “it is a very sensitive issue at the moment”, as the government is in the process of negotiating with the shareholder of both companies, the Swedish company Telia.
The PM reiterated that in the current situation the government is trying to assess all possible aspects in order to best protect the strategic interests of the Latvian state in a potential deal. She also added that the ministers during the closed government meeting on Tuesday expressed a shared view when discussing the future of Tet and LMT.
There was also a consensus that in the negotiations on the future of Tet and LMT, it was important for the country to understand how to deal with controversial and contentious issues, should any conflicts arise, the outcome of which would be strategically decisive. “There are still issues that need to be worked on during the negotiations,” the PM added.
Asked whether a potential deal between the Latvian state and Telia could take place already this year, Siliņa answered in the negative, explaining that such procedures usually require quite a lot of time, as they take place under the supervision of very meticulous lawyers. “This is not just a story about a decision. It is very important for us to achieve our strategic interests and that is what we are working on, because we also need to understand clearly why the company has acted the way it has acted,” the head of government added.
The PM explained that the telecommunications and information technology business is currently very competitive and “the Latvian state has to think about how not to reduce the value of these companies, but on the contrary how to make these two companies more competitive and profitable in different modular options, different scenarios, and also strategically without losing this important stake for the country”.
As reported, the government on Tuesday did not yet adopt a final position for talks with Sweden’s Telia on the future of Tet and LMT, instructing the Ministry of Economy (MoE) to clarify its intentions within three weeks.
The government spent more than four hours in a closed room on Tuesday, announcing at the end of the meeting that the usual press conference to explain government decisions would not take place, and inviting questions to be addressed to relevant ministries.
Viktors Valainis (ZZS), the economy minister responsible for pushing the issue, told LETA that the revised protocol would include a clear government mandate on further MoE negotiations with Telia and what position the ministry would represent in further talks. The politician promised to have this clarity in three weeks’ time, so that this could also be communicated to the public.
The closed-door government meeting considered dozens of different directions on the future development scenarios of LMT and Tet. In total, there were reportedly more than 30 different directions.
The Minister of Economy said that there was basically a consensus in the government on the issue, but that three weeks were needed to prepare clarifications and then the government would decide on “a concrete road map and a concrete offer”. He stated that the time spent in discussions was not spent arguing but discussing scenarios in detail.
“We have come up with two options, which are being further assessed in detail,” said Valainis. Having reached one final offer, the MoE will try to reach an agreement with the co-owner of LMT and Tet, Telia, on the future of the companies.
“If those negotiations fail, then we will also have scenarios B and C, what we will do in case we fail to agree something with the other owner, but at the moment, after today’s meeting, I look at this process quite positively,” Valainis said.
The Minister of Economy explained that today’s cabinet had in-depth discussions on both the financial situation of the companies and the future prospects, the situation in Europe and the world with such companies.
“We considered several dozen different positions in general, where there are also strategic interests of the state in these companies, on which we were instructed to prepare a vision on how we could further develop these activities for the companies under one scenario or another,” Valainis said. The scenarios explored various aspects, such as “how we see these companies and the way forward in the data centre business”.
Valainis stressed that the government had looked at various scenarios in detail, including, for example, the development of business outside Latvia. It also assessed “opportunities, threats, successes, failures, potential for one scenario or another”.
“None of the scenarios currently on the table for the government is clear-cut, each of them has positive aspects, but there are also negative ones, and it is very important that the government is aware of these negative potential scenarios that may arise in one case or another,” Valainis stressed.
The Minister of Economy stressed that the final decision will be a decision of the two shareholders, but the managers of the companies involved should not comment on the process at the moment. “If you own something that you would give to someone else to manage, then what to do with that particular company is your decision, not the decision of the managers,” Valainis said. He stressed that he would come to discussions with the companies themselves, but that this was premature at the moment.
Commenting on the confidentiality of the negotiation process, Valainis said that the Latvian side has its own interests and so does the other owner, and “if we disclose now our future development scenarios, it definitely affects the value of these companies in one scenario or the other”. “If one shareholder says something, it is binding in the negotiations and it can create a disadvantage for us in further negotiations,” Valainis said.
The minister stressed that none of the possible scenarios could be implemented in a month or two – all scenarios would take a year or more to implement and to prepare for these decisions, to understand whether it is possible and feasible. It would also require much more detailed discussion, both with the companies themselves and with the various specialists involved, to make all the necessary assessments.
Valainis did not answer LETA’s question which of the two options he supports – merging LMT with Tet and paying the other shareholder, the Swedish company Telia, several hundred million euros to reduce its influence, or buying both companies outright from Telia and attracting a new strategic investor.
The Minister stressed that he was not ready to comment on the unofficially voiced options.
Valainis previously told LETA that after the report on the results of the shareholders’ negotiations is reviewed by the government, it will be explained to the public why certain scenarios for further development were chosen and why other options were rejected.
LETA has unofficially learned that during the negotiations between the Latvian state and Telia, several possible options were discussed – from the merging of Tet and LMT to maintaining the current situation. The possibility of a full or partial buyout of the two companies from Telia, as well as the divestment of certain assets, have also been considered.
As already reported on the 16th of July this year, the government agreed in a closed session on further scenarios for the negotiations with Telia and instructed the MoE to conduct these negotiations.
At the time, a complex management scheme was established for Tet and LMT, which the two shareholders – the Latvian state and Telia – have so far been unable to agree on changing.
The State, in the person of Possessor, owns 51% of Tet, while Telia’s subsidiary Tilts Communications owns 49% of Tet. In turn, a total of 49% of LMT’s capital is held by Telia and its subsidiary Sonera Holding, 28% by the Latvian State through the Latvian State Radio and Television Centre (23%) and Possessor (5%), and a further 23% of LMT’s shares are held by Tet.
This means that Telia, through Tet, currently has a 60.3% stake in LMT, while the Latvian State has 39.7%. However, in practice this is not the case and in fact the State also has decisive control over LMT, as it has a majority in Tet. At the same time, this has hampered a number of strategic decisions that require consensus.
Telia initially proposed a scenario where LMT would acquire Tet’s telecommunications business for cash, which would be spun off into a separate company (notionally Tet Telco), special dividends would be paid to the two existing Tet shareholders and Telia would sell its 49% stake in Tet to the State, while Tet would acquire the missing 1% stake in LMT, resulting in the two main shareholders – the State and Telia – owning 50% each of LMT. It was proposed to conduct an initial public offering (IPO) at a later stage and to list 20% or more of LMT shares on the stock exchange. Both shareholders would sell part of their shares in the IPO. The transaction would also result in the inheritance of the companies’ senior management.
State officials have not officially commented on the offer but have rejected the possibility that the State could sell its stake. Instead, the possibility of buying back LMT and Tet shares from Telia is being considered.
The Latvian State Radio and Television Centre (LVRTC), which currently manages the State’s 23% stake in LMT, has expressed its willingness to participate financially in the buy-out of Tet or its assets – the optical network infrastructure. This option has also been supported by LMT President Juris Binde, who said that LMT could in turn acquire Tet’s customer portfolio.
Uldis Tatarčuks, Chairman of the Board of Tet, has said that Tet could buy shares in LMT. In such a scenario, if the shareholder structure of Tet remains unchanged, 51% of the merged company would belong to the Latvian state and 49% to Telia.
It has already been reported that the Tet Group posted a turnover of 295.753 million euros last year, down 9.5% year-on-year, while its profit fell 40.1% to 15.226 million euros. At the same time, Tet’s own turnover in 2023 was 187.204 million euros, down 19.1% on 2022, while the company’s profit fell 21.1% to 18.987 million euros.
Meanwhile, the LMT Group posted a turnover of 310.269 million euros last year, up 6.7% year-on-year, while the Group’s profit rose 0.6% to 32.069 million euros. The parent company’s turnover in 2023 was 175.062 million euro, up 5.9% year-on-year, while the company’s profit rose 20.6% to 34.864 million euro.