BTC Takeover Delayed

Economic News

22 Jul 2010
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The takeover of Bulgarian Telecommunication Company (BTC), the country's dominant fixed-line operator, has been delayed to allow further examination of the company's market position. The company, a giant by Bulgarian standards, has been the focus of large investments since its privatisation and is arranging further loans to boost its development and to refinance its debt.

This week it was announced that the European Commission would postpone a ruling on the acquisition of BTC by AIG Global Investment Group (AIG GIG). The deadline for the decision on whether the acquisition can go ahead will now be made by the end of July after the Bulgarian Commission for the Protection of Competition (CPC) requested the postponement. The European Commission is set to rule on whether AIG GIG's takeover contravenes competition law.

BTC owns what is known as the "last mile" of the fixed-line telecommunications system - that is the telephone cable which links the customer at home to the network though a switching station. It also owns the mobile operator Vivatel, which was launched in 2005. Vivatel is targeting a 13% market share by the end of this year. At the end of 2006, the operator had 700,000 subscribers or 6.7% of the total market.

Last week, BTC was fined Lv200,000 ($141,000) by the CPC for abuse of its dominant market position, in particular with regards to the company's delay in giving access to its network to Internet Services Provider (ISP) NetPlus. NetPlus applied for access to the network in June 2003 and had to wait over a year until it was granted by BTC, which the CPC judged was restricting consumers' choice of ISPs. BTC has 14 days to appeal against the fine.

In May, AIG Capital Partners, a private equity branch of AIG GIG specialising in emerging markets, proposed a bid of 1.08bn euros for acquiring the 65% stake in BTC held by Novator, an investment company affiliated to Icelandic tycoon Thor Bjorgolfsson. AIG Capital will also purchase a further 25% on the Bulgarian Stock Exchange, where the company is listed. Novator bought its majority share in BTC from the state in 2004 for 280m euros through Viva Ventures, a Vienna-based investment firm. AIG agreed to pay 1.66bn euros for the total 90% stake and is reported to be planning a buy-out offer to the minority stakeholders and take the company private, once the CPC gives green light to the deal.

Since BTC was privatised four years ago, more than 500m euros has been invested in the company, making it, in Bjorgolfsson's words, "a leader in terms of technology, operations and services".

The acquisition price was set at Lv11.25 ($7.80) per share, including a dividend of Lv0.55 per share, making it the biggest private acquisition in Bulgarian history.

Pierre Mellinger, head of AIG Capital Partners Central and Eastern European office, said, "We are attracted by the opportunities for growth of the company, its nationwide coverage, solid management and broad field for diversification." He added, "The acquisition of BTC fits well into our strategy of investments in this growing region... AIG GIG looks forward to supporting BTC in its future development as the country's leading telecommunications provider."

A BTC spokesperson told local press, "The BTC management will continue as before to focus its efforts on the customers and the market by providing state-of-the-art communications services allowing the positioning of BTC as a leading provider of telecommunications solutions."

BTC's first-quarter profit dropped 5.3% year-on-year to $30m. Last year overall net profit was $91.83m, which the company forecasts to fall to $78.6m in 2007.

In June, BTC announced plans to take a syndicated loan of up to $780m to refinance its debt and back investments. On July 27, BTC's management is expected to propose to its shareholders that a group of large foreign banks including Deutsche Bank, The Royal Bank of Scotland and UBS, acting through Bank Austria Creditanstalt, should manage the loan. Investments earmarked include the continued digitalisation of the network, the development of Vivatel and the launch of new products. In total, the company's investment programme amounts to $272.9m for 2007, matching investments made in 2006.

Part of the loan will cover a $551m package bearing the interest rate of Euribor, the average European reference rate for unsecured loans, plus a cost margin, to refinance old debt.

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