France Telecom/Kulczyk selected to negotiate for TPSA stake
Behind the government's selection of a Franco-Polish consortium for exclusive negotiations in the purchase of the 25-35% chunk of state telecom monopolist Telekomunikacja Polska (TPSA) was the political maneuvering that underscores most business deals, some analysts said last week.
The consortium of France Telecom and Kulczyk Holding was selected for exclusive negotiations to buy up to 35% of shares in TPSA, Treasury Minister Emil Wasacz said last Monday. The France Telecom-led consortium was chosen because it offered a better combination of price, investment package and attitude toward the new telecom act, he said. The new telecom act expected to be signed into law later this year would ensure the liberalization of the telecom industry, effectively ending TPSA's monopoly.
But analysts said a political power play was at the heart of France Telecom's clinching of the deal with the help of its politically well-connected partner, Kulczyk Holding.
"Nine out of ten people will tell you it's about price and the employee social (benefits) package because that's what the (Treasury) Ministry says, and that's what (people) will understand," said Bob Creamer, a telecom analyst at Raiffeisen Capital & Investment Polska.
"France Telecom's motivation (for the alliance with Kulczyk) is this: The regulation of the telecom sector is extremely important for any strategic investor," Creamer said. "Because telecommunications is a game where the rules change, having a reasonable relationship with the government and regulators is important."
But the exact role of Kulczyk's involvement with France Telecom remained undisclosed even though the French company made known its alliance with Kulczyk when it submitted its application for the second tender earlier this year, analysts said. It was also unclear which portion of the TPSA stake would be held by Kulczyk after the final negotiations with the Treasury Ministry have been concluded, analysts said.
Kulczyk Holding is a privately owned company active in the telecom, brewing and insurance businesses in Poland. Its founding father, Jan Kulczyk, has a reputation as one of the country's most influential and politically well-connected power brokers.
"This privatization is more about politics than about a market transaction," said Andrzej Kasperek, an equity analyst who covers the telecom sector at Erste Securities Polska. "If you haven't got any support from political authorities, you won't get the national (telecom) operator."
Because TPSA is a state-owned company, its management board is appointed and controlled by the government. The current board, under the leadership of TPSA President Pawel Rzepka, was appointed by Solidarity Election Action (AWS) in 1997, the same year that the current AWS-led government came to power.
Kulczyk Holding, however, leans toward the Democratic Left Alliance (SLD), the ex-communist opposition party, Creamer said. He pointed out that TPSA's management board has changed in every election year, and that with an election scheduled for next year, the current AWS government doesn't want to face the possibility that the control of TPSA may slip into SLD hands should the opposition party come to power in 2001 or even sooner if the current government collapses prior to the elections.
"Every change in government has produced a change in (TPSA's) management," Creamer said. "Basically the main driving force for the Treasury Ministry is to keep the (current) management board there. It doesn't want TPSA to become SLD."
As to why France Telecom created an alliance with pro-SLD Kulczyk, Creamer said: "France Telecom wants to hedge its bets to have a reasonable relationship with any other potential political group (that may come into power), hence the SLD." But he emphasized that the behind-the-scenes politics was no different from business deal-making in other European countries.
Wasacz, though, said that Kulczyk Holding's participation in the consortium did not influence the ministry's decision.
Final negotiations between the consortium and the Treasury Ministry will be hashed out during the next five weeks. Wasacz did not reveal any negotiation details, including the price per share offered. "We aren't revealing the price because we hope it will be even higher," he said. Sources close to the deal said the consortium offered zl. 38 per share, or $4 billion for the entire 35% stake. The other bidder, Telecom Italia, offered only zl. 29 per share for a total of about $3 billion. The strategic investor will have an option to purchase an additional 16% stake of TPSA in the future, Wasacz said.
While analysts agreed that Kulczyk served as a political lobby to help France Telecom win the tender, they disagreed on which course the final weeks of negotiations would take. France Telecom would continue to discuss price, capital expenditure and social packages for employees, Kasperek said.
Creamer, however, dismissed further discussion of such topics. "Normally key issues such as price cannot be decided by now," he said. "The ministry is not (going to) get more money or look for it but will look to restrict the role of Kulczyk Holding."
In the first tender for a 25-35% stake in TPSA held last December, France Telecom acting alone offered zl. 23 per share, or zl. 11.3 billion ($2.69 billion) for a 35% stake, after the only other bidder, American telecom operator SBC Communications, withdrew. The ministry, however, cancelled the tender after France Telecom refused to meet its asking price of zl. 28- zl. 30 per share for a total zl. 13.7 billion- zl. 14.7 billion ($3.26 billion-$3.5 billion) for the full 35% stake.
