Elektrim accepts Vivendi plan
Elektrim (http://www.elektrim.pl/english/prasa_infpras_2001_06_29.htm) accepted a plan by France's Vivendi (http://www.vivendiuniversal.com/home/en/index.html#) Universal last week to sell its telecom and Internet assets to the conglomerate for O589 million, ending a long contentious battle with German operator Deutsche Telekom (http://www.telekom.de) for control of mobile phone operator Polska Telefonia Cyfrowa (PTC).
But while the deal resolves only some of the Polish power and telecom company's short-term financial problems, it has cast a shadow of uncertainty over the future of Elektrim's other holdings as well as PTC, local analysts said last week.
Elektrim signed a letter of understanding with Vivendi to sell control of its fixed-line telecom and Internet assets to the French for E489 million. Vivendi will pay Elektrim the first E80 million on July 30 and the remaining E409 million by Dec. 10.
Vivendi will simultaneously purchase a 2% stake of Elektrim Telekomunikacja (ET), the parent company's telecom arm, and 1% of Carcom, a joint venture of Elektrim and Vivendi that owns a small stake in PTC, for an additional E100 million. The deal boosts Vivendi's existing 49% stake in ET to 51%. It also pushes ET's 49% stake in PTC to 51%, giving control to Vivendi vs. Telekom's 49%. The French will also issue Elektrim a E120 million loan by June 29.
While the deal supplies short-term cash for heavily indebted Elektrim by providing quick financing to pay off a E480 million convertible bond issue that comes due in mid-December, some analysts contend the Polish conglomerate faces a somewhat uncertain future after forfeiting its prized telecom assets.
"It (the deal) solves the liquidity problems, but will not solve the long-term growth problems or strategy," said Andrzej Kasperek, an equity analyst at Bank Handlowy. He added that the deal was "not good news" because it left Elektrim only with non-core assets, such as power and cable manufacturing holdings.
Others agreed with the sentiment. "It's not good for Elektrim," said Wlodzimierz Giller, a telecoms analyst at Erste Securities, noting that ET and PTC the company's most valuable assets are essentially under the control of Vivendi.
Elektrim is now a "holding company without any strategy," Giller said, adding that it intended to expand its power-sector holdings, but would require a steady cash flow, which it doesn't have. He added that shareholders would be unlikely to approve a new share issue for additional financing. "The future of Elektrim looks gloomy," he said.
Elektrim still has short-term bank loans and may sell its cable operations to pay them off, according to Giller who cautioned that this was not a good way for the company to create shareholder value.
Yet, analysts said Elektrim would have lost control of PTC had it accepted a similar proposal by Deutsche Telekom whereby the Germans would have purchased an additional 3.45% stake in PTC for $400 million, giving it a controlling stake in the Polish mobile phone operator. However, they also said the Vivendi deal did not lay to rest uncertainties with PTC. Bob Creamer, a telecom analyst at Raiffeisen Capital & Investment Polska in Warsaw, said the deal didn't provide for a capital increase within PTC, which might create a conflict between Vivendi and Deutsche Telekom.
Elektrim's shares were hardly affected after the firm publicly disclosed its agreement with Vivendi last Thursday. The share price closed at zl. 25.40, a 1.6% increase over Wednesday's close at zl. 25.
Elektrim issued more of the deal's details last Friday, saying that it would form a strategy with Vivendi for ET's fixed-line, mobile phone, cable television and Internet assets. The deal also envisions taking ET public on the Warsaw Stock Exchange (WSE) within the next 12 to 18 months. Legal disputes between Vivendi and Elektrim will also be dropped.
