Slovenia sells ski maker Elan but Telekom Slovenije privatisation in limbo

By bne IntelliNews August 4, 2015

Iskra Pavlova in Bulgaria -


Slovenia has just sold its renowned sports equipment maker Elan to a consortium of Russian-owned Wiltan Enterprises and Merrill Lynch, but Telekom Slovenije’s privatisation remains in limbo almost a month after the biggest obstacle for its completion was removed with the approval of a merger between telecommunications subsidiaries in Macedonia.

Both firms are on the government’s list of 15 key companies slated for privatisation drawn up back in 2013 when Slovenia narrowly avoided an international bailout by pouring €3bn into the troubled banking sector, equivalent to 10% of its GDP. Since the bailout money came from loans, the authorities pledged at the time to sell many lucrative state-owned assets in order to reduce the country’s debt burden, raising interest from many global investors.

Two years later, however, Ljubljana has fulfilled less than half of its privatisation pledges. Political interference in the process has been the main reason for the major delays, which chased away many eligible bidders, as illustrated by the unresolved sale of Telekom Slovenije, the country’s most valuable firm.

All downhill

The Slovenian Sovereign Holding (SDH), which is in charge of privatisations, inked the sale of 100% of Elan on July 30 for an undisclosed amount. Under the terms of the deal, Wiltan Enterprises (owned by Russia’s VR Global Partners) is acquiring 95% and Merrill Lynch the remaining 5%. Russian investors have thus gained control over the Slovenian sporting goods producer 30 years after Russians were skiing on Elan skis in the 1985 Roger Moore-starring James Bond movie “A View to a Kil”.

Elan is famous worldwide for its skis and snowboards but is also active in marine sailing, and produces most of the necessary equipment for sports facilities. Its ski and yacht manufacturing plants are located in Slovenia, while snowboards are produced in Austria. Globally, the Slovenian group has marketing companies in Canada, Germany, Austria, Switzerland and Japan, as well as many independent distributors in other countries around the world.

Elan’s buyers have pledged to help the company return the €12mn it owes to the Slovenian government, which was state aid extended in 2008 but deemed illegal by the European Commission in 2012. Brussels has been demanding the recovery of the state aid over the past three years with media reports even claiming in late 2014 that it had pushed for the launch of bankruptcy at Elan, allegedly seeing that option as the only way to recover the unlawful state aid.

After the sale of Elan and the agreed earlier in 2015 sales of lender Nova Kreditna Banka Maribor (NKBM) and food producer Zito, the government is left with eight more companies on its privatisation list, with Telekom Slovenije being the crown jewel but also proving to be the hardest nut to crack.

Flag carrier Adria Airways is also among the assets still on sale. SDH invited expressions of interest in Adria in the beginning of July and the outcome is to be announced later this year. On the other hand, the operator of the Ljubljana airport was successfully privatised last year by Germany’s Fraport.

Called to account

The fate of Telekom Slovenije, however, remains unclear more than two years after its sale process was launched.

In mid-June, the privatisation talks hit a dead-end after the sole bidder, UK investment fund Cinven, placed additional conditions related to the delayed merger between the Macedonian units of Telekom Slovenije and Telekom Austria, saying this could affect the approved Telekom Slovenije transaction value by €100mn. In particular, Cinven asked for a €10 per share discount on the agreed share price from the €130 offered, because of the then-unresolved merger.

At the time SDH nixed the concessions, saying they represented a too big risk for the consortium of sellers. However, this did not cast any serious worries on the outcome of the deal since the two parties underlined that they remained committed to completing the deal at a later stage or on different terms.

With the approval of the Macedonian merger at the beginning of July, all eyes were set on Cinven and its response to the removal of the last unresolved issue. The investment fund was expected to announce in the second half of July whether it would proceed with the privatisation talks, but it has so far failed to make any comment.

SDH appears unsure how to proceed. According to an August 2 report in the daily Finance, based on unofficial information SDH was supposed to decide at the end of July on whether to end the process, but a vote on the decision was taken off the table. It is also still unclear how long SDH will wait for Cinven's response, and there is speculation it will soon put an ultimatum to the potential buyer.

SDH’s indecisiveness reflects the resistance to selling off state assets from both the political establishment and public that has characterized this former Yugoslav state since its independence in 1991.

Many politicians, including some in the governing coalition, have demanded that Slovenia stop the transfer of valuable state assets to private hands. Moreover, citizens have been also closely following the Telekom Slovenije sale with some 3,000 people taking to the streets of Ljubljana in February to demonstrate against the planned sell-off. 

Finance also claims the validity of Cinven's bid has technically expired, though added that this would not prevent the sale if Cinven decides to extend the validity without introducing big changes to its offer, already approved by SDH. Reportedly, one of the biggest challenges for Cinven now is how to raise the necessary finance. The fund has allegedly considered issuing bonds to finance the acquisition, but it might now have to wait for the autumn before tapping the markets since investor activity usually wanes in the summer.

Taking stock

Cinven’s initial bid submitted in April offered €110 per Telekom Slovenije share, which was considerably below the anticipated €180 and lower than the market price of €130 per share at the time. After public and political opposition to the sale of the country’s top company, especially at such a discount, Cinven improved its bid to €130 in May. This values the package of some 4.75mn shares on sale (73% of total equity) at close to €620mn.

For comparison, Telekom Slovenije shares closed at €93 apiece on the Ljubljana Stock Exchange on August 3. They have been gradually gaining ground ever since the approval of the Macedonian merger on July 8 from the historic low of €85.

Nevertheless, the share price remains considerably below its mid-April value of some €130. Back then, SDH announced that the tender attracted only one bid, that of Cinven, even though Deutsche Telekom and US-based investment fund Providence were also expected to participate, creating stronger competition.

Following the tender outcome announcement, the telecom operator’s shares plunged 10% in one day and have been on the decline much of the time since then until the encouraging news over the approved merger in Skopje.

Concerning the Macedonian deal, Telekom Austria and Telekom Slovenije agreed at the end of 2014 to merge their Skopje-based units into a joint company that will be majority controlled by Telekom Austria. The terms of the deal give Telekom Slovenije the option to later exit the newly-formed operator, with the exit reportedly valued at €100mn. The merger was expected to be completed in the first quarter of 2015, but was delayed over the lack of regulatory approval.

Telekom Slovenije is expected to reveal its six-month net profit and detailed financial performance at the end of August. So far, the company has only said its consolidated Ebitda of €104.4mn in January-June was 7% above the plan.

In the same statement dated July 29, Telekom Slovenije’s management said it estimates that with the approval of the Macedonian merger, the last condition in the privatisation process has been met. “Telekom Slovenije has throughout actively supported the sale process, while at the same time emphasising that it is important for the company’s current business as well as its further development, that the process, which has been going on for almost two years, is concluded as soon as possible,” the management said.

On August 3, media reports claimed that Telekom Slovenije is one of the several companies that filed non-binding bids in the ongoing privatisation of Telekom Srbija. If the Slovenian telecom operator does indeed have such aspirations towards its Serbian peer, it would hardly be among the favourites considering its own enduringly unresolved sale.

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