Advent’s Bulgarian saga continues

The drawn out privatisation of Bulgarian telecoms group BTC has again been delayed – this time as a result of demands for further information from the Bulgarian privatisation agency.

Having come close earlier this week to reaching agreement to purchase the majority of state-owned Bulgarian telecoms group BTC, Advent International has again been thwarted in its efforts to complete the transaction.

Today, Viva Ventures, the Advent International led investor consortium bidding for BTC, was told by the Bulgarian privatisation agency that formal approval of its offer had again been postponed. According to Advent, the agency’s supervisory board has demanded to see a final contract amended to include recent improvements to the firm’s initial E250m offer. The agency said it will then take a further fourteen days to consider the offer.


Earlier this week, Viva Ventures agreed to sweeten its offer for Bulgarian Telecommunications Company (BTC) in line with the latest requirements from the government's privatisation agency. The new deal sawViva Ventures offer a total of $324m for a controlling stake in the company. The firm had also agreed to cut the number of proposed redundancies within the group by 2,000.


“The Bulgarian privatisation agency and its supervisory board are fully aware of the terms of our improved offer, which had been solicited by the Bulgarian government and which it has publicly accepted as being sufficient to close the deal,” said Chris Mruck, the Advent director leading the Viva team. “The Board’s demand to see a revised contract is a delaying tactic that has been imposed on them for political reasons.”


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 financial centres, which was not in line with the agency's sell-off strategy.


The decision by the Bulgarian authorities to pull out of the deal with Advent appeared to have been made more on political rather than financial grounds though. 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. However, 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 also 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 bidding 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.


“The sale of BTC to Viva is good news for employees, customers and for Bulgaria itself,” added Mruck. “Today’s politically motivated postponement is very bad news for all concerned, but most particularly for Bulgaria’s international credibility – doubts about which could seriously jeopardise its ability to attract international capital and damage its aspiration to join the European Union.”