For sale or not for sale
The transition from classroom to boardroom wasn't a difficult one for Jaroslaw Janiszewski. The ownership transition of his company, however, may prove to be trickier.
The 45-year-old spent 18 years as a doctoral student, lecturer and assistant professor of telecommunications at the Technical University of Wroclaw before entering the corporate arena. A noteworthy telecoms specialist, Janiszewski was recruited in 1997 as the vice president of technology, and the third employee of a local fixed-line start-up called Telefonia Lokalna (TL). Drawn to the challenge of building a telecom network from scratch, he accepted the job. Today he is the president, a position he has held since January 2000.
Now, however, the future ownership of Janiszewski's company is up in the air. KGHM Polska Miedz, the firm's sole owner since last November, wants to sell TL to a strategic telecom investor this year. The Polish copper and silver producer plans to issue a memorandum next week to put TL up for sale, according to Wojciech Marciniak, KGHM's director of investor relations.
The company intends to sell TL to avoid high and repetitive investments in the telecom firm, Marciniak said. "TL is a relatively small business that should be run by a competent telecom company," he said. He would not confirm that KGHM was seeking zl. 500 million ($121 million) for TL based on the price of invested capital, as previous news reports stated.
The imminent sale of TL was part of KGHM's buyout deal last autumn. KGHM, which at the time held 50% of TL, purchased the remaining shares from energy group Polish Power Grid (PSE) and telecom firm Tel-Energo for zl. 163.8 million ($36 million). The deal stipulated that KGHM would sell TL within two years or PSE would have the option of repurchasing its stake.
This is not the first time, however, that KGHM said it would sell TL. The metals concern said several times recently that it would put up the for-sale sign, Marciniak said. But he is certain that now his firm will issue the memorandum after concluding negotiations with BNP Paribas, the adviser to the sale.
Others said KGHM's internal troubles will take precedence over the sale of TL this year. The state-run company would likely sell TL in 2002, according to a Warsaw analyst who requested anonymity. The metals giant is plagued by inner turmoil with disagreements over its own further privatization and a supervisory board whose decisions are heavily influenced by politicians, he said. Furthermore, in the current bearish investment market, telecoms worldwide have been having problems finding investors.
KGHM and PSE established TL in the late 1990s to take advantage of the liberalization of Poland's telecom market, which was just getting started. The concerns diversified their business activities to protect their revenues from fluctuating prices in the metal and energy markets, respectively.
Since mining and energy companies usually have their own communications infrastructures, getting into the telecom business was an easy jump for both companies. KGHM had its own local loop with about 23,000 subscribers, while PSE has its telecoms subsidiary Tel-Energo, which operated a fiber-optic network for the power grid.
"We had some experience there and if we got enough licenses we could either run (TL) ourselves or sell it," Marciniak said.
TL, which operates under the brand name Dialog, today has more than 1,000 employees. It holds nine telecom operating licenses for local calling service, eight of which are for regions in the middle and southwestern parts of Poland, and one for 17 gminas (administrative areas), surrounding Warsaw. The telecom firm also holds a license for national data transmission service. In addition, the company plans to start its Warsaw-area service in the autumn and will compete with monopolist Telekomunikacja Polska (TPSA) and Netia, the country's second largest operator.
In 2000, TL's revenue was about zl. 80 million ($19.5 million) and should double to at least zl. 160 million ($39 million) this year, Janiszewski said. TL posted losses of zl. 161 million ($39.2 million) last year, he said, while spending zl. 422 million ($103 million) on the development of its network. Janiszewski expects the losses to be higher this year due to the huge cost of expanding the network, which he declined to estimate. He predicted TL would break even in a few years, but would not say when.
With debt financing as its major source of income, TL signed an initial agreement earlier this year for a six-month, zl. 800 million ($195 million) syndicated bank loan. Although the money has yet to change hands, it would be used to refinance a previous E150 million loan and to pay for the firm's expansion plans, for which it intends to spend zl. 625 million ($152 million) to boost its current 158,000 subscriber lines to 250,000 by year-end.
Despite the firm's debt, Janiszewski is confident that TL's rapidly expanding client base, which he said has tripled from last year, would be an attractive asset for prospective buyers. The sale will happen this year if the price was right, he said, adding that the transaction would not only be a necessary step in TL's development, but also signal the beginning of a period of consolidation in Poland's telecom market.
"It is impossible to compete with TPSA, and for a lot of small firms it's not a good situation," Janiszewski said. "Taking into account the situation of the players on the market, something must happen ... but I hope the role of Telefonia in this something will be huge."
