Situation
In late 1997, Sonera (formerly Telecom Finland), appointed ARC Associates to analyse the attractiveness of increasing Sonera's existing shareholding of 27 per cent in Tilts Communications A/S ("Tilts") to 90 per cent by acquiring Cable & Wireless plc's ("C&W") 63 per cent shareholding. Tilts is a Danish company that manages a 49 per cent shareholding in Lattelekom SIA, the Latvian national telecommunications operator.
Approach
After initial discussions with C&W, ARC Associates undertook a detailed valuation review early in 1998, as well as a market review, financial review and regulatory review on both Lattelekom and Tilts. A full legal due diligence was undertaken at the same time. The acquisition was particularly challenging given the fact that discussions had already commenced between Tilts and the Government of Latvia regarding the regulatory framework for Lattelekom.
Sonera, ARC Associates and their legal advisers undertook a series of discussions with C&W regarding valuation, price and terms. After reaching agreement with C&W, Sonera and its advisory team then held discussions with the International Finance Corporation ("IFC") regarding its 10 per cent shareholding in Tilts.
The Transaction
On 24 September 1998, Sonera completed the acquisition of C&W's 63 per cent shareholding in Tilts for approximately $240 million, raising Sonera's effective shareholding in Lattelekom to 44.1 per cent.
The transaction was complex, spanning five countries, namely the UK, Finland, Latvia, Denmark and the US. In addition, serious outstanding regulatory and tariff issues complicated the discussions, as did the uncertain market conditions and political environment and the involvement of a multilateral agency shareholder (IFC).