Telekom Austria Makes Greek U-Turn

Telekom Austria AG (NYSE: TKA; Vienna: TKA) has abandoned its plan to bid for a stake in OTE S.A. because there was no way it could gain control of the Greek national operator.

"We have been closely monitoring the developments around the planned privatisation of OTE," notes Boris Nemsic, Telekom Austria's CEO, in a statement emailed to Light Reading (see Eurobites: M&A Hotbed):

It is clear for us that we need to be in a position to leverage our strengths and be able to share our expertise as a telco operator in south-eastern Europe. At present it appears that the Greek Government is intending to only sell a minority stake without any management control. Under these circumstances we are no longer interested in pursuing this target, as a minority stake would not allow us to generate shareholder value.

The Greek government is looking to sell a stake of up to 20 percent in OTE and raise up to €1.5 billion (US$2.04 billion) in the process. Selling to another carrier that could help OTE's growth and strategy development was one option, but Telekom Austria was the only company to have publicly expressed an interest. Now the government may be forced to adopt the alternative strategy, placing its OTE shares on the open market.

Telekom Austria's decision comes just days after a senior executive from the carrier's mobile business, Mobilkom Austria AG & Co. KG , said taking a stake in OTE was of interest as the carrier looks for ways to become the dominant force in Southeast Europe's telecom market.

The news sent TA's share price up by €0.44, more than 2 percent, to €19.85 ($26.98) on the Vienna stock exchange, while OTE's share price dipped €0.20, nearly 1 percent, to €20.88 ($28.38).

Analysts at Dresdner Kleinwort expected to see TA's share price rise on the news, as the cash that would have been used to buy the OTE stake will now likely be returned to shareholders through a share buyback.

But the Dresdner team believes Telekom Austria's decision means "a big opportunity for medium term value creation is lost."

They believe "OTE provided an opportunity for [Telekom Austria] to consolidate the Balkans, and enjoy both quantifiable financial benefits, as well as operational synergies," especially as the carrier is likely to experience earnings erosion in its domestic market and in Croatia and Bulgaria, where it already has holdings.

The Dresdner analysts also raised questions about the handling of the process by the Greek government, which is "looking for a strategic partner whilst unwilling to negotiate terms for control." The government is under political pressure and is losing favor with voters, and that macro-political situation could "tempt the government to pursue politically convenient solutions for OTE," namely, a public placement of the shares.

— Ray Le Maistre, International News Editor, Light Reading