After more than a year of negotiations and court appearances with the Bulgarian government, Advent International, the international private equity firm, looks set to clinch a deal to acquire the state-owned telecoms group with an improved offer.
Viva Ventures, Advent’s bidding vehicle, has agreed to sweeten its offer for Bulgarian Telecommunications Company (BTC) in line with the latest requirements from the government privatisation agency.
Under the previous agreement, Viva Ventures had offered E210m for the 65 per cent stake being sold by the government. The firm had also agreed an investment package worth E400m, the bulk of which would be made in the fourth and the fifth years after completing the deal.
The new deal will see Viva Ventures offer a further E20m for a controlling stake in BTC. Perhaps more importantly from a political perspective, the firm has also agreed to cut the number of proposed redundancies within the group by 2,000. Advent has also agreed to waive a dividend from BTC’s profits in 2002 worth E65m.
Advent had initially agreed a final contract with the privatisation agency in March this year. The privatisation agency then reversed its decision to proceed in May on the grounds that documentation on the deal was not complete. The agency also cited its unhappiness with Advent’s insistence that existing Bulgarian telecom law remain unchanged in the future, Advent’s demand that it keep 65 per cent of BTC’s dividends from 2002, and the fact the deal allowed for BTC’s shares to be transferred to companies registered in offshore tax havens, which was not in line with the agency's sell-off strategy.
Most observers though believed the decision reflected political, not just financial, imperatives. Many interested parties within Bulgaria (including politicians and senior corporate executives) had declared the final terms for the sale of BTC to Advent disappointingly low. Unions had also vowed to oppose the staff layoffs that were a component of the deal.
But the key factor was the influence of the junior partner in Bulgaria’s governing coalition. Bulgaria’s Prime Minister Simeon Saxe-Coburg-Gotha is propped up in parliament by Ahmed Dogan’s Turk Movement for Rights and Freedoms, which represents Bulgaria’s ethnic Turkish minority.
Dogan’s influence is widely cited as being responsible for the government’s abandoning the E110m sale, initiated in March 2002, of its 65 per cent stake in tobacco monopoly Bulgartabak to a Deutsche Bank-led consortium.
When it made the decision to reject Advent in May, the Privatisation Agency recommended restarting negotiations with the all-Turkish consortium made up of industrial conglomerate Koc Holding and state-owned landline monopoly Turk Telekom whose original offer for BTC Advent had previously beaten in October last year.
The Turkish consortium had offered E185m for the 65 per cent stake in BTC but had envisaged fewer staff cuts than Advent. When the Privatisation Agency withdrew from deal negotiations with Advent, besides prompting an angry response from the private equity firm, many observers predicted that other foreign investors would take flight at what seemed an inherently unpredictable sale process for all Bulgarian assets. This growing consensus view helped bring the Bulgarian authorities back to the negotiating table with Advent.