The Greek government will have its hands full this and coming weeks. In addition to facing the wrath of the trade unions over the reform of the country’s social security system and the strong reaction of vested corporate interests and the union of employees at Public Power Corporation (PPC) over the latter’s plan to cooperate with Germany’s RWE, it will have to deal with yet another issue, which is none other than telecoms provider OTE. According to various sources, MIG (Marfin Investment Group) has clinched a deal to sell all or part of its minority stake in OTE to German telecoms operator, Deutsche Telekom, at an unspecified price. The latter will be at a premium compared to the share price of OTE at Friday’s close on the Athens bourse. OTE shares up OTE shares closed at -19.14, up 3.35 percent on Friday, and Deutsche Telekom will most likely pay more than -24 per share to buy the stake. MIG’s average acquisition cost of OTE shares is estimated between -23 and -24 without including the cost of swaps the investment company has entered into with banks to buy the stake. This deal is important for both MIG and the government. The investment company, which will be able to raise more than -2 billion if it sells its entire stake, estimated at 19.6 percent, to the German telecoms operator. In addition, it will get some capital gains at a time bourses and credit markets are under pressure as evidenced by the Fed’s extraordinary decision to bail out Bear Stearns, the second largest underwriter in US mortgage bonds on Friday. It is worth noting that Marvin Investment Group (MIG), an investment holding company whose biggest shareholder is Dubai Group, raised more than -5 billion last summer at more than -6 per share in the biggest IPO ever by a European company of its kind but has seen its share fall dramatically since then. It gained 8.04 percent to -4.30 on Friday on speculation about the deal with Deutsche Telekom. The likely sale of OTE shares to Deutsche Telekom by MIG is even more important for the government, although it comes at a difficult time. The government has repeatedly said it would prefer a major Western European telecoms organization to become OTE’s strategic partner and has discouraged financial investors such as Private Equity Funds from attempting to gain control of the organization. Deutsche Telekom (DT) was among the European operators that expressed interest in OTE in the second half of 2006 but the change of CEO at the time and DT’s other priorities at home seemed to have played a role in putting the project on hold. It is known that the government had appointed three advisers, namely Credit Suisse, UBS and Eurobank EFG, to find a strategic investor for OTE in the last quarter of 2006 and 2007 but their efforts did not bear fruit. It is ironic that the same company, that is MIG, which defied the government’s repeated warnings to raise its stake in OTE, is becoming the catalyst for finding a strategic partner for the country’s telecoms incumbent. The government in December last year passed legislation prohibiting investors from acquiring more than 20 percent in companies of strategic importance to the country without its approval. By all accounts, this is a protectionist piece of legislation and the government would have had a difficult time defending it before the European Court of Justice, where it would most likely have ended up. So, the MIG-Deutsche Telekom deal will save the government face because it will not have to go to court. Even if the case is taken to the European Court, it will have no problem doing away with the law since DT will – de facto – have become OTE’s foreign strategic partner. The government will also be able to sell a deal with Deutsche Telekom to the international investment community as a sign that its privatization program is still on track. This may not be appreciated so much at a time when international stock markets are suffering but will be later on. Other factors It should be noted though that how this deal will be structured is another story and will not happen tomorrow. After all, Deutsche Telekom will have to justify the deal to its shareholders. The latter must be fully aware of the Greek government’s restrictive law with regard to the shareholding of domestic corporations of strategic importance, so they will ask for clarification on that particular point. After all, it is not popular with shareholders nowadays when their companies spend billions of euros to buy minority stakes in other companies, even if they are regarded as good assets, such as OTE mainly on account of its operations in Southeastern Europe, without having secured a road map to full control down the road. In turn, this means the government must have been informed of the deliberations between MIG and Deutsche Telekom and must have given its blessing even if it does not advertise it or even denies it in public. It is very likely DT will ask the Greek government at some point to buy part of its 28.7 percent stake in OTE and the latter will consent to it along with the signing of a shareholders agreement. DT may even proceed with a public offering to buy the remaining OTE shares from the market and enhance its equity stake in the Greek telecoms organization. Aside from what DT will or will not do in coming weeks and months, it is safe to say Deutsche Telekom is most likely OTE’s foreign strategic partner and this cannot escape the attention of trade unions and opposition political parties. So, the government will likely face stiffer resistance and will have to prepare for that.