The Greek government is expected to finally start the process for the privatization of Hellenic Telecommunications Organization (OTE), the state-controlled telecoms incumbent, this week by picking its advisers for the project, which could be one of the most important merger and acquisition (M&A) deals in the history of the country. However, the government may have to change the privatization model it initially had in mind. Several weeks after the relevant ministerial committee surprised the markets with its decision to begin the search for the foreign investment house(s) to be the government’s advisers, it looks as if the committee will choose two international investment houses and a Greek bank on Thursday. A number of foreign banks are vying for the job, with Merrill Lynch, Credit Suisse, UBS, Deutsche Bank and Morgan Stanley widely perceived the front runners. The Greek adviser will most likely be picked among National Bank, Alpha Bank and Eurobank EFG. It is no secret that competition among the foreign banks for the post of advising the government on the project is intense and sometimes accompanied by blows below the belt. The government appears to have taken advantage in seeking the lowest possible fees from the potential candidates but by doing so it may find it difficult to enlarge its group of foreign advisers, should it wish to, because the financial reward will not be enough of a draw, according to an investment banker who works for one of the international houses. Of course, the financial reward is not the only criterion for the job, which could elevate a foreign bank in the relevant table compiled by Thomson Financial and others. A high ranking sale could translate into more future deals since foreign banks use them as a pitch to clients. According to many analysts, the government wants to proceed with the privatization of OTE to enhance its pro-reform image and send a strong positive signal to the foreign community about the country being receptive to foreign investment. One should note that the state directly owns 38.7 percent of the share capital of OTE, while an additional unspecified stake is in the hands of other entities, such as ATEBank, which are also controlled by the state. Swisscom is the only other major European telecoms incumbent in which the state holds a bigger stake than the Greek state does in OTE. The Swiss government owns 62.50 percent of Swisscom, the French state about 32.5 percent of France Telecom, while Germany has a direct and indirect equity stake of about 30 percent in Deutsche Telecom. Unclear intentions At this point, it is not clear what exactly the government plans to do with OTE other than privatize it by linking it with a Western European telecoms operator. The terms of the international tender, which will be determined after a period of consultations with its advisers, is expected to be published before the end of the year and will certainly clarify its intentions. However, the government may have to revise its strategy and proceed with a placement rather than an M&A deal. Undoubtedly, there will be strong reactions from the trade unions, primarily those of OTE, and the opposition political parties but this is hardly surprising. Already, the unions of OTE have decided to raise banners outside the company’s buildings across the country proclaiming: «OTE is sold: Why.» It is not difficult to think that the argument of national security and the accusation of selling a profitable state corporation cheap will be heard once again. However, these arguments and accusations cannot hide reality. OTE is facing intense competition at home in the most promising line of business, broadband access, which is a high-speed method of transmitting data, voice and video services. The competition is bound to become more intense in the future as new players coming into the Greek market, such as Russia’s Sistema, or existing ones, such as mobile operator Vodafone, move into the fixed-line business. Moreover, OTE, like other European incumbents, has a formidable opponent in Brussels. Viviane Reding, the European Commissioner for the Information Society, has unveiled recommendations for revising telecommunications regulations that would force providers to share their cutting-edge broadband infrastructure with rivals and extend regulations to new areas such as text messaging. The state will have to take all these developments into account as well as the fact that foreign strategic investors nowadays demand a controlling equity interest and management control in the foreseeable future to enter into the kind of scheme – privatization and tie-up – the government seems to have in mind. The latter appeared at some point to favor a deal in which OTE’s foreign strategic investor would acquire a considerable stake in OTE from the state and have seats on the board. The government would strike a shareholding agreement, giving away OTE’s management now or in the future to the strategic investor but holding veto power over certain issues. However, such shareholding agreements have been rejected by the European Court and the European Commission is firmly against them, making such a deal quite risky from the government’s point of view. Within this context, the government may have to re-think its strategy and proceed with a new model where the privatization of OTE would take place without ceding control to a foreign strategic investor. The new model of privatization will have to be accompanied by the signing of an agreement by OTE’s management and the trade unions which will align the company’s work rules and personnel promotion with those of the most aggressive of its foreign competitors to ensure a more efficient corporation, to operate under the minimum state interference. This way, the government will be able to deflect most of the criticism, keep OTE under Greek control, privatize it and transform it into a more competitive and efficient telecoms organization.