Gov’t uneasy about MIG’s drive

The Greek government may be considering legislative initiatives to discourage the investment and holding company Marfin Investment Group (MIG) from increasing its equity stake in OTE, the country’s incumbent telecom operator, and ultimately become its strategic partner but it would be better off achieving its goal via other routes. As OTE gets closer to acquiring more than 90 percent of Cosmote shares at 26.25 euros per share and proceed with a squeeze out in the context of its public tender offer, despite the objections of its second biggest shareholder, that is, MIG, the government appears to be examining ways to secure the control of the organization and cope with MIG. Marfin Investment Group (MIG), an investment holding company whose biggest shareholder is Dubai Group, has reportedly become a headache because on the one hand this makes it more difficult for the government to find a Western European partner for OTE and on the other, it poses a threat to the state’s longstanding grip over the organization. There is no doubt MIG’s biggest weapon at the present time is the cash it can mobilize for acquisitions. MIG impressed many in the investment community by raising -5.2 billion via a rights issue and global offering in early July, the biggest ever by a European investment company. At the time, MIG had signaled its intention to invest up to -15 billion in companies in Southeast Europe. However, the credit crunch may have made it more difficult for the group to raise that money. Andreas Vgenopoulos, Marfin Group’s key executive and founder, told reporters a few weeks ago that MIG had about -6.9 billion out of -11 billion to spend on acquisitions. At the time Vgenopoulos spoke, MIG had announced the acquisition of over 85 percent of Vivartia, the country’s largest food group, a majority stake in Attica Holdings, Greece’s largest ferry operator, a majority stake in Serbia’s largest commercial real estate holder pending the approval of the relevant authorities and some other smaller assets. It also controlled about 14 percent of OTE’s voting rights. So, MIG had considerable firepower left and apparently continued to consolidate its position in OTE. Nevertheless, MIG’s behavior with regard to OTE contrasts with that of other financial investors in the past such as the large private equity group Blackstone, which had expressed interest in acquiring control of the telecom incumbent but backed off after the government made it clear it did not favor such kind of investment in OTE. By all accounts, MIG did not contact the government before announcing it had acquired more than 5.0 percent of OTE in the summer. Since then, Finance Minister Giorgos Alogoskoufis has stated publicly on a number of occasions that the government prefers to see a large Western European telecom company become the strategic partner of OTE. The last time he did so was a few days after meeting with Vgenopoulos. Other than stating its friendly intentions toward the state and its goal of creating international corporate champions based in Greece, MIG has continued to increase its stake, surpassing the 15 percent mark about 10 days ago according to a statement sent to SEC, the US capital market watchdog. It should be noted that OTE is listed on the NYSE in addition to the Athens bourse. Losing control? This apparently has made some government officials uneasy, prompting a re-examination of their strategy with regard to OTE because they see MIG strengthening its position in OTE’s shareholding at the time they had adopted a wait-and-see attitude. This raises the specter of either losing control of the organization at some point down the road or being forced to share the management and decide OTE’s future course with MIG. Market participants say it is not unlikely for MIG to up its equity stake in OTE close to 20 or 30 percent and secure the support of foreign funds. The state’s direct stake in OTE is about 28 percent, rising to 33 percent if the stakes of state-controlled entities are taken into consideration. According to Greek corporate law, shareholders commanding the majority of votes at a general shareholders meeting with the proper quorum can appoint their management. On the other hand, all investors know that it is not wise to go against the will of a government because of its power. For example, the state can make everybody’s life miserable by sending over the tax officers every day to check books and impose fines. Moreover, telecoms is a regulated sector and the regulator, which does not have the best relations with OTE, may become even stricter. Undoubtedly, the strategists at MIG are fully aware of all these complications but apparently continue to think that the trade off between risk and reward in their OTE investment is worthwhile and that it will pay to further strengthen their position in the organization’s share capital. So far, they have made public their desire to have their own representatives on the OTE board, a demand the government will find it difficult not to grant in the context of European business norms. However, the government may also think this may be the first step toward greater demands such as appointing their own CEO. Under such circumstances and the signals sent by MIG, the government has no option but to look for alternatives to cope with the situation at OTE which is becoming increasingly perplexed and appears to be abandoning its wait-and-see attitude adopted so far. However, the government will have to play by the book and not resort to legislative initiatives that smack of statism and may hurt its relations with the international investment community. Apart from OTE’s Chairman and CEO Panagis Vourloumis, who is an experienced investment banker, the government can employ other advisers to develop strategies to meet its goal of linking up OTE with a Western European telecoms operator. In this quest, some arm-twisting may not be a bad idea, provided it is justified on legal and other grounds.