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

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUContradictory 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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