Impact on Lattelekom
Impact on LMT
Merger Authorization
In the second half of 2002 a merger between two major foreign investors took place that will have a significant impact on the Latvian telecommunications market.
The merging companies, Telia Aktiebolag plc and Sonera Corporation, have between them invested approximately $170 million in the share capital of Latvian telecommunications enterprises.
The merger's main effect in Latvia was that it would grant Telia decisive influence over two key players on the domestic telecommunications market - SIA Lattelekom and SIA Latvijas Mobilais Telefons (LMT).
At present, Lattelekom is the sole provider of public telecommunications network services in Latvia. However, following legislative changes its monopoly over these services is due to expire on January 1 2003. After this date other enterprises will be able to enter the market for the provision of public fixed telecommunications network services, although it is expected that Lattelekom will preserve its dominant position on the market for the foreseeable future.
Prior to the merger Sonera's fully owned subsidiary Sonera Holding BV held a 100% stakeholding in Tilts Communications, which in turn held 49% of Lattelekom's shares. Sonera thus indirectly held a shareholding of 49% in Lattelekom.
In accordance with the management agreement executed between Lattelekom and Tilts, and the umbrella agreement executed between Lattelekom, Tilts and the Republic of Latvia, Tilts (and thus, indirectly, Sonera) can control certain of Lattelekom's management decisions. As a result of the merger, Telia will acquire 49% of Lattelekom's shares and the right to adopt certain management decisions, and will thus obtain decisive influence over this enterprise.
LMT is one of two providers of public mobile telecommunications services in Latvia. Its market share is well over 50%. Prior to the merger Sonera Holding indirectly held 24.5% of LMT's shares. In addition, Lattelekom has a 23% stake in LMT, so Sonera indirectly held an additional 11.3% of LMT's shares. Therefore, Sonera's total indirect shareholding in LMT stood at 35.8%.
The other party involved in the merger process, Telia, held 24.5% of LMT's shares before the merger. Once the deal was concluded, its direct and indirect holding in LMT would rise to 60.3%, giving Telia decisive influence over the largest mobile telecommunications operator in Latvia.
As the effects of the merger could noticeably hinder, restrict or distort competition in Latvia, the Competition Council was duly notified by Telia and Sonera and requested to decide whether to authorize or prohibit the transaction.
The Competition Council acknowledged that as a result of the merger, concentration on the market could create separate markets of telecommunications services which could have a negative influence on competition. However, notwithstanding these potentially negative effects the merger was permitted, on condition that the participants meet certain conditions aimed at eliminating and preventing any adverse effects on competition.
For further information on this topic please contact Filip Klavins at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected]).