Greek energy company seeks European partner

Greek energy company seeks European partner
The Greek government wants a big European telco despite entreaties from local Marfin Investment Group.

Thursday, December 06, 2007by Elaine Green

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MIG Vice President Andreas Vgenopoulos has his own ideas for telco OTE. But the government is more interested in other potential suitors

IT IS a tricky situation when the Greek state has one plan for its incumbent OTE and its second-biggest investor has another. Marfin Investment Group (MIG), the listed Greek financial group, met with Finance Minister George Alogoskoufis on November 27 in an effort to find some common ground.

MIG has been stake-building in OTE for some time and now has just under 18 percent, while the government has 27 percent. The remainder is listed on the Athens Stock Exchange.

"The minister made it clear that the government wants to find a big European telco as a strategic investor," an OTE source told this newspaper.

A government insider confirmed the meeting had taken place. "During the meeting, the minister and [MIG vice president] Andreas Vgenopoulos exchanged views, but the minister stressed that the government's existing strategy on finding a strategic partner has not changed," the insider said.

The government had sought a strategic investor earlier this year but was unsuccessful in finding the right suitor. European telcos showed little interest in having a minority stake with the government controlling the reins. But instead, opting to dilute its own stake further by 10,7 percent, the government opened the door for investors such as MIG to make a play for the company.

MIG would like to become the majority shareholder in OTE. In theory, if it reaches over 30 percent, it could force a public offer on the stock exchange. But MIG has said time and again that it does not want to make hostile moves, so instead it is endeavouring to persuade the government that it is capable of turning around OTE and continuing the efforts made to date by CEO Panagis Vourloumis. Indeed, in appointing Vourloumis to represent MIG at a recent proxy vote during its extraordinary general meeting, MIG signalled that it has faith in him heading up the giant.

Vourloumis has so far been successful in revamping OTE as an appointee of the state. He has removed much of the old guard via a voluntary retirement scheme (VRS). His ongoing efforts include wrenching the incumbent from antiquated protocol practices of hiring and firing and promotion regimes, as well as changing OTE's culture, which is less efficient and customer-centred than private sector peers. This has created tension within the company and attracted fierce union opposition.

But Alogoskoufis has made it clear that he believes only a European telco has the capability to steer OTE through the process of change still to come and that only a player with in-depth experience, such as Germany's Deutsche Telecom or Spain's Telfonica, can become its strategic investor. MIG feels differently, so there is something of a stalemate.

"Unless the two sides' strategies converge, there is no basis for further talks," the OTE source told us. The source said it was not clear if MIG will get the OTE board seat it has requested from the government. But it is understood from other sources that MIG will get two of three board seats it has requested and will, therefore, begin to exert influence on management decisions.

It has been suggested that MIG could choose to team up with a European telco. In an earlier interview with this newspaper, Vgenopoulos did not rule out such an idea. But he refuted rumours that he was teaming up with an Arab telco, such as Etisalat, for a bid.

MIG reportedly favours a business plan for OTE that comprises 3 main elements for the incumbent. Firstly, it wants OTE's fixed services to be offered in one common platform, articles in wire services such as Reporter maintain. Competitors are offering triple-play and other packages and, while OTE has launched some combined products, MIG apparently believes OTE can do more to integrate its offering and compete with rivals.

Secondly, it is understood that MIG wants to restructure the services of mobile arm Cosmote. Thirdly, it wants to put all the other OTE activities into one unit. However, further details of how such plans would work or what they might comprise of are sketchy. Earlier this week, MIG caused a stir by undertaking a warrant with bankers for 6 percent of MIG's stock of OTE. "MIG is just shifting some OTE stock off its balance sheet by putting it into a swap agreement with a couple of banks," a source close to the matter told this newspaper, without naming the banks. MIG is thereby leveraging up its balance sheet but still effectively owns the stock.

OTE has a market capitalisation of over 12 billion euros. Its share price fell by 2.3 percent on November 27 as the market accounted for weak results. These were released on November 29 and showed that third-quarter net profit dropped 31 percent to 155.5 million euros compared with 223.6 million euros in the same period in 2006. This was partly explained by the fact that 2006's results had been propped up by an extraordinary 50-million-euro gain from lower-than-anticipated costs for OTE's VRS.

Revenue, however, rose 9.7 percent to 1.63 billion euros, from 1.48 billion euros the year before.

OTE was upbeat about its future prospects. As Cosmote will soon be under its wing, profits and revenue for the group will be even stronger.

"In recent months, we have made considerable progress towards our goal of building a coordinated group that is better equipped to succeed in the converging telecommunications markets in which we operate," Vourloumis said. "This led to our offer to take over 100 percent of our mobile operations but is also reflected in the programmed integration of OTEnet within Greek fixed-line and the spin-off of OTE Globe. Our plans to divest non-core activities are also on track," he said - a reference to the sale of yellow pages division InfOTE, which has five bidders vying for it.

"In the [last] quarter, we achieved solid operating performances, characterised by strong, continued growth in mobile and satisfactory resilience in fixed-line, and obtained good results from our cost-cutting exercises. All this strengthens our confidence that our strategy is the right one. We are achieving our business plan targets in this rapidly evolving, competitive environment," he added.

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