ECONOMY

OTE does not rule out Cosmote bid

Telecoms group OTE declined to rule out the possibility of buying out its profitable Cosmote subsidiary, amid market speculation that a deal is near. OTE on Wednesday called an extraordinary shareholder meeting where it said it will propose an amendment to its charter enabling it to issue new shares. Analysts said this could make it easier for OTE to make a bid for Cosmote via a share swap. OTE shares were up 1.88 percent and outperformed the broader market yesterday on what analysts said were expectations that Greece’s biggest telecoms firm would soon absorb its mobile phone subsidiary. OTE Chief Executive Panagis Vourloumis, in Romania to talk about OTE’s operations in the country, declined to comment on any possible buyout of Cosmote’s shares. «I won’t answer any questions not related to our activities in Romania,» he said. Analysts say the group could soon move to buy out the remaining stake in Cosmote it does not own to cement profits from future mobile telephony growth and become more attractive to a strategic investor. Greece’s largest telecoms company has lost market share as increased competition and falling mobile phone charges turn customers away from its traditional fixed-line services. «Cosmote is OTE’s most profitable unit. It doesn’t want to pay out minorities and it would be free to control future synergies,» said Proton Securities head analyst Vassilis Kararizos. In August, OTE reported second-quarter profit rose 22 percent, helped mainly by increased revenue from Cosmote, with group sales also up thanks to Cosmote’s purchase of retailer Germanos. OTE holds 67 percent in Cosmote. The remaining 33 percent is worth about 2.6 billion euros ($3.7 billion) at current market prices. Strategic partner Greece, which owns about 28 percent of OTE, has also sought a strategic partner for the group as part of plans to raise funds to pay down public debt. But its bid to find an interested European peer has failed. OTE CEO Vourloumis has said he favors a bid for the rest of Cosmote, but as yet no offer has been made. Cosmote appointed Vourloumis as its CEO in September after Evangelos Martigopoulos resigned. «The intense competitive environment, the continuous evolution in the telecoms sector… dictate the adoption of a unified strategy,» Vourloumis said at the time. OTE’s shares have gained about 14 percent so far this year, underperforming the Athens General Index, which is up about 19 percent. The stock trades at about 20.8 times expected 2007 earnings, a discount to European peers such as Deutsche Telekom, which trades at 21.7 times prospective earnings, but at a premium to Portugal Telecom, which has a multiple of 17, according to Reuters Estimates. Romtelecom hopes the days of decline are over OTE telecom is upbeat about the prospects of its landline and mobile Romanian subsidiaries, Romtelecom and Cosmote Romania respectively, despite difficulties due to the peculiarity of the local market, CEO Panagis Vourloumis told a presentation in Bucharest yesterday. Vourloumis said OTE group’s investment in Romania is its biggest abroad and constitutes its biggest challenge. Romtelecom’s managing director, Giorgos Ioannidis, said the company, in which OTE has a 54 percent share, faced many serious problems to begin with, such as the lowest penetration in the landline telephony market in Europe, just 19 percent, strong competition from alternative broadband technologies and cable television, and the very strong presence of mobile telephony, which accounts for 78 percent of voice services. Additionally, low rates for all services, high termination charges for landline-to-mobile calls and the company’s inability to keep its customers – a loss of 1.5 million of them since 2005. Ioannidis said the drain of customers seems to be ebbing, having dropped from about 60,000-70,000 a month previously to just 2,000 in September. The company hopes the trend will be reversed by the end of the year. Romtelecom also hopes to increase its share in the broadband services market from 12 percent to 17 percent. It now has about 250,000 ADSL and more than 300,000 customers for satellite television, the cost of which is 3.90 euros a month. Nikos Tsolas, Cosmote Romania’s managing director, said the company has managed to capture a 11.4 percent market since it was launched 18 months ago, despite strong competition from giants such as Orange and Vodafone. It hopes to reach 3 million customers by the end of the year, with the help of an extensive sales network which includes 200 outlets of the Germanos chain. Germanos accounted for more than 60 percent of new Cosmote Romania customers in the second quarter of 2007.