Magyar Telekom Nyrt might finally win a privatisation tender again years after buying the Macedonian telecom Maktel. The Hungarian firm is tendering for privatisation of the 49% stake of Slovenian incumbent, Telekom Slovenije. In the first round of bidding the highest offer, EUR460 per share, was made by Slovenian business tycoon Mirko Tus' company Engrotus, while Icelandic telcom firm Skipti offered EUR350 and Magyar Telekom would pay EUR317.
An interesting aspect is that Magyar Telekom and Hrvatsaki Telekom, both majority-owned by German Deutsche Telekom AG are tendering for the Slovenian firm, offering the same price. But according to Croatian press reports, the Slovenian privatisation agency would prefer an affiliate of European telco mammoth Deutsche Telekom as winner, and Engrotus' offer is not taken seriously. A Hungarian analyst at the same time suspected that the domestic offer might have been made to drive up prices in the second round. The more interesting aspect is that Deutsche Telekom's two affiliates are tendering for the same firm, wisely not outbidding each other, but offering the same price. Neither Frankfurt-based Deutsche Telekom analysts, or Budapest-based Magyar Telekom analysts, nor the investor relations department of Magyar Telekom could offer an explanation for that. Erste Bank's Daniel Lion called it strange, but could not offer further explanation either.
Deals beyond
It is too early to discern whether Magyar Telekom will win the tender for Slovenije Telekom, but the Hungarian firm has not yet run out of potential targets, irrespective of outcome. There are still a number of companies to be privatized in Eastern and South Eastern Europe, where the Hungarian firm can search for targets. While in the recent past the Hungarian firm bought broadband data, IT, systems integrator and multimedia companies on the domestic market such as KFKI Zrt to expand its activity in these low-margin but relatively high-growth areas, in the future fewer but larger-scale acquisitions would be preferred, company management maintains. Magyar Telekom is aiming for majority stakes in companies operating in Eastern European countries in which Magyar Telekom's majority owner Deutsche Telekom AG is not present. Based on this policy and the size of potential acquisition targets, Raiffeisen Bank analysts opine that Albanian incumbent Albtelecom and Bulgarian national telekom service provider BTC could represent the best potential targets for the Hungarian firm. The high-growth opportunity would have been Albtelecom, the incumbent landline telephone provider in the country, where the fixed-line penetration is only 10% among Albania's 7.4 million citizens. The number of mobile phone subscribers grew 125% last year in Albania. Albtelecom has 250,000 customers and a reported revenue of EUR120 million, with EUR14 million in profit. Albtelecom is also investing into developing broadband internet service, and has interconnection lines from the Italian town of Bari, to Istanbul, the Albanian press reported. Albtelecom was also granted one of the three GSM licenses in Albania in 2004 but has not started its mobile operation thus far. On the mobile phone market, Albtelecom will have to compete with AMC, which has the largest market share in Albania with 52%, almost 1 million customers, and Vodafone with 48% market share. The mobile phone penetration in Albania is also low at 53%, so the business presents an attractive investment opportunity, according to Raiffeisen. There is one significant problem with Albtelecom, though: 78% of the company was sold to Turkish company Calik Enerji in October 2005 for EUR120 million by the then-reigning Albanian government. The subsequent right-wing government blocked the sale, however, and revisited the situation in 2006, claiming irregularities.
Pressure from Turkey
The Albanian government has stated that Calik Enerji should present a partnership agreement with an experienced telecommunications company in order to fulfill requirements under Albanian laws. Albanian media, meanwhile, has reported that the local government was under quite a bit of pressure from Turkey for two years, but in the end a new privatization agreement was signed in June 2007, after negotiations on the highest political level between the two countries. It might have helped that Calik reportedly promised additional investments in the corporation, amounting to about EUR30 million. So Albtelecom seems to be sold for now, but seeing the rollercoaster of the company's privatization, further opportunities may arise. The next-best target for Magyar Telekom would be Bulgarian Telecommunications Company (BTC), with 2.5 million fixed line subscribers and 0.7 million mobile subscribers through its affiliate called Vivatel. BTC is profitable, but Vivatel has only 8.6% market share on the Bulgarian mobile market, while Telekom Austria's Mobiltel has 52.5% and Greek telco company OTE's local affiliate has 38.8%. On the other hand, mobile penetration in Bulgaria is 106%, while fixed line reaches only slightly more than one-third of the 7.4 million population. "The large [slow growth] fixed line business may dampen the appetite of buyers, but we think that the overall group performance is still worth a look," Magyar Telekom has competed for BTC on one previous occasion but then lost to venture capital fund Advent. Advent than got engaged in a two year legal battle with the local authorities, before closing the deal after winning the tender. Now the fund is likely to sell the company to strategic investors, while 35% of the company is traded on the stock exchange. Bosnia-Herzegovina's BH Telecom, the incumbent fixed-line and wireless service, would also make a suitable target. The government plans to privatize its 90% stake this year, Erste Bank analyst Vera Sutedja said. BH Telekom is operating on a market with 4.5 million citizens, and despite the fact that 10% of it is listed on the Bosnian stock exchange, no sales data or profit numbers regarding the firm are available. The state-owned 50.1% share in the other Bosnia-Herzegovina telecom, HT Mostar, is also to be privatized this year, but 49.9% of it is already owned by Croatian T-Hrvatski Telekom, and so does not appear suitable. The government is going to sell the majority of its fixed-line business, and the firm recently merged with mobile phone operator HT Mobilne Komunikacije. Governments in South Eastern Europe generally prefer to sell a minority stake first in strategic companies before selling further stakes after asset prices increase as a result of investment on the part of the new private owner. These strategic firms also often go public, so price of stakes also grow as the valuation of the free floating shares increase.
Once bitten, twice shy
Magyar Telekom is also likely to be careful with the political and legal risk factors, since it ran into an "irregular payment" scandal in case of Maktel, and, as the Erste analyst put it, "once bitten twice shy." Whichever target Magyar Telekom sets acquisition sights on, the company will face stiff competition either from Western European firms, especially from Telekom Austria, which has already expressed interest in BH Telekom, for example. Firms from the neighbouring countries and Turkey are also very likely to compete and drive up the prices, not to mention the good relations shared with some countries in the region by Russian firms with deep pockets and a strong desire to expand in Europe, an Erste analyst commented. (Trading Markets)
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