Need to find strategic investor for OTE telecom becomes urgent

The government’s decision to block Marfin Investment Group (MIG) from acquiring control of OTE without its consent has made it imperative for the state to actively seek a foreign strategic partner for OTE as soon as possible to enable the removal or at least major revision of its recent protectionist legislative initiative. In a bid to stop MIG from acquiring control of OTE, the government submitted on Friday an amendment in Parliament, prohibiting investors from acquiring more than 20 percent in companies of strategic importance to the country without its approval. This is undoubtedly a very restrictive, protectionist piece of legislation that European conservative governments usually shy away from unless a very sensitive chord is touched. In the Greek case, this chord was touched when the government sensed political humiliation if OTE ended up in the hands of a financial investor. The government had repeatedly signaled its desire for a major Western European telecoms organization to become OTE’s strategic partner. However, the efforts of its three appointed advisers, that is, Credit Suisse, UBS and Eurobank EFG, to find one proved fruitless earlier this year. The conservative administration had also made known its disapproval of financial investors such as private equity funds. This was the reason Finance Minister Giorgos Alogoskoufis discouraged the Blackstone Group and other major, world-renowned financial investors from seeking to gain control of the country’s telecoms incumbent. However, unlike those investors, MIG did not stop. Emboldened by the government’s decision to sell a 10 percent stake in OTE during the summer which reduced its shareholding in OTE to about 28 percent, and its own success in raising more than -5 billion, MIG executives decided to pursue their investment. By using part of their cash and leverage with the OTE shares used as collateral for the loans, MIG recently found itself with about 18.5 percent of OTE and declared its intention to up it to 20 percent and seek the appointment of its representatives on the board of the company. The goal was for MIG to consolidate OTE. At first, MIG talked about getting two or three seats on the board of directors of OTE. Recently however, officials and others close to Marfin Group also talked about sharing management of the telecoms operator with the state. MIG was always careful careful to underline its respect for the state’s rights in relation to OTE in the context of national security and other issues and strived to make a distinction between the government and the board appointed by the state. The attack on OTE’s chief executive officer, Panagis Vourloumis, a respected veteran investment banker with close ties to the prime minister, and the open challenge against the board’s strategic decisions, such as the recent agreement to sell Infote and the public tender to buy out the minorities of mobile subsidiary Cosmote, was a manifestation of this strategy. But MIG had apparently misjudged the situation by assuming it could go ahead and implement its plans with the government sitting idle at a time when the political cost was becoming much greater than the political benefit. Talk in international market circles last Thursday that MIG was preparing a tender offer to acquire OTE, left it with no option but to act on Friday. Let’s not forget, Greece is not an Anglo-Saxon country but a continental European country where the state plays an important role in the economy and wants to have a major say in some enterprises, such as OTE, even though it holds only a minority stake. Even if a financially powerful investor wanted to go against the government’s will, counting on the EU Commission’s adherence to open markets and free competition principles, it would be unwise to do so in an industry such as telecommunications which is heavily regulated. Add to this also the fact that the state has other options that could make it painful for any financial investor. MIG’s strategists obviously did not share this view and from now on face an uphill battle to control OTE and satisfy their shareholders. In doing so, MIG has made it harder for the government not to act in a way which hurts its liberal profile among domestic and international investors and may cost OTE, the Athens bourse and the Greek economy a great deal further down the road. Since the government could not avoid taking such a protective legislative initiative, its priority from now on should be to find a quick way out. The only way out is to start searching for a respectable foreign telecoms operator to become OTE’s strategic partner. Undoubtedly, the credit crisis has made it more difficult to find foreign strategic partners at this juncture. However, the OTE group is widely regarded as a good asset and the clue to finding such a partner may be for the government to water down its previous demands. In other words, the state will have to understand that no one puts his money in a company which others manage. The era of acquiring minority stakes in major companies with no say in strategic management decisions is past. Foreign investors are willing to spend billions of euros to buy significant minority stakes in good companies but also want to appoint their people to the board and map a path to a majority stake after a few years, assuming full control. With Spanish Telefonica having taken itself out of the race for OTE, the field of potential large European telecoms operators to become strategic investors at OTE has become narrow and may become even more so depending on the future of Egypt’s telecoms group Orascom, which according to some reports could be up for sale. This means the government may have to seek a strategic investor for OTE from other continents to have more choices. Turning OTE into a new National Bank may have been the best thing for everybody. However, MIG’s move has made this impossible. At this point, finding a strategic partner for OTE is even more important than it was a year or so ago because the recent protective legislation has to be removed as soon as possible. This will be good for the country, the government, OTE and even MIG which has invested a good deal of money in Greece.