Capital: Mark Schneider: I am still interested in purchasing BTC

Originally published in Capital, Bulgaria, on February 12, 2016

The American candidate for the company, investor and manager with over 30 years of experience in the telecommunications

On November 20th last year BTC ended up with new predetermined owner. The Bulgarian businessman Spas Rusev acquired control over the telecom in partnership with the Russian financial group VTB for EUR 330 million. The change in the ownership will be realized through the registered in Luxembourg Viva Telecom, which buys 100% of the registered in Luxembourg company InterV Investment. It holds the full ownership of BTC through the intermediate company. The sale was rather peculiar due to the fact that the seller VTB was also a buyer, and according to people close to the deal the bank provided to Rusev the large part of the financing, and according to others – even the entire amount. The payment of the price and the transfer of ownership is expected to be finalized sometime next week.

Before the auction shareholders in BTC were Tsvetan Vasilev with 43.33%, VTB with 33.33%, and the rest 23.33% belonged to a group of creditors of the telecom, headed by Michael Tanenbaum, as the ownership passed through a complex chain of companies. In November 2013, the operator through InterV took a bridge loan in the amount of EUR 150 million from VTB. The maturity date was on 22 May 2015, at the time when Tsvetan Vasilev already had his bank bankrupt and was prosecuted by the Bulgarian state. VTB decided to check in its collateral under the loan – 100% of the shares of the owner of BTC – InterV Investment. According to the bridge loan agreement, the bank is obliged to organize a procedure on the sale of InterV Investment, and not to simply utilize it. 

This led to the auction in November last year, for which there were reasonable suspicions to believe that it was going to be fictitious, and the buyers had already been selected. The seller was the London investment unit of the Russian VTB – VTB Capital. And director of the institution’s branch in Bulgaria is Milen Velchev – Minister of Finance in the Government of Simeon Sakskoburgotski, appointed for the position particularly by Spas Rusev’s support. The uncertainty regarding the exact amount due to CCB regarding the previous sale of the telecom made the deal risky and unattractive for strategic investors. Moreover, the procedure was organized with short terms, the candidates could have get acquainted with the empty shell company – owner from Luxembourg, but not the telecom itself and etc.

Fortunately, at the very auction there was a second participant – the consortium between the Greek Olympia of the founder of the chain Germanos – Panos Germanos and the American hedge fund Third Point. The participation of Germanos increased the price to EUR 330 million. The money will be used to cover the bridge loan, which together with interest and charges already amounts to EUR 180 million. The remaining EUR 150 million will be distributed among the shareholders according to their share in the capital. And as the shares of Vasilev and VTB – almost 77%, were paid with money from CCB, the state should try to take a proportionate share of the money – in this case EUR 115 million.

The deal for the transfer of control over the telecom has not yet been finalized, but as early as the procedure in November it was stated that the main goal is for the new owners to resell the company by the end of 2016.

During the procedure in November there was a third candidate, who, however, did not submit the binding offer and did not appear at the auction. This was Mark Schneider, owner of the European cable operator UPC, together with the American fund for equity investments CVC. Schneider’s and the fund’s offer, which leaked in full in the public space, evaluated BTC at EUR 850 million, but was indicative and did not meet VTB’s requirements. We are talking with Mark Schneider about his interest in BTC, in case a new resale of the telecom is initiated.

Mark Schneider is an American entrepreneur, investor and manager with interests mainly in media and telecommunication business, and he already has more than 30 years of experience in the field. Schneider has a degree in law and economics. Among the most popular companies, in which he took part during the years are United International Holdings, United Global Communications, United Pan-European Communications (UPC), Chello Broadband and Chellomedia, which jointly became one of the largest provider of broadband internet outside the US and now are the core of Liberty Global, which operates in 14 countries and from which Schneider exited in 2005 in order to realize his other investments. He took part in the acquisition and development of cable, satellite, television and radio providers and to a number of channels and broadcasting services in more than 30 countries in Europe, Latin America and Asia. Recently Schneider founded East Africa Capital Partners, which controls through Africa Telecommunications, Media and Technology Fund the Wananchi Group – the group develops broadband internet and media business in 14 African countries.

Are you still having interest in BTC?

The short answer is yes, I am still interested, and my partners as well. We still see a great opportunity if we manage to solve the main structural issues in the company.

Would you participate if a new procedure for the sale of the telecom is initiated?

Most likely we would participate in a new real procedure, and we would also negotiate at this moment with the current owners to reach an agreement.

Are you already negotiating with the new owners of BTC?

We told them that we have the confidence and capacity as a group to make some good things for these assets and we are still very much interested and motivated to do so. This is not a negotiation, but only a notification.

Who did you talk to from the Bulgarian side?

I have a few people who are helping me in this. I, personally, am not in the center of these discussion, but my people are in contact with the people from the consortium, who won the auction. What happened was that BTC was sold and bought by VTB.

Have you ever been in Bulgaria?

I have been to Bulgaria a few times before. I have not been in the country since last autumn.

Have you ever met Gerogi Velchev?

I know who he is. I met him once. I think I talked to him during the collateral sale. My partners know him and his brother. They manage the VTB unit in Bulgaria and we had a few discussion with them during the procedure.

Would you participate by yourself or together with the CVC in a future sale procedure?

I and CVC are partners. We will be partners in the future in this procedure. 

You submitted a non-binding offer. Why did you give up at the next stage and did not submit a binding offer last autumn?

We exited the procedure because we felt that the investors like me or CVC cannot be part of such process because of the way it was structured. We would not feel comfortable in a process where the business in question is thoroughly underestimated beneath its market value. We thought that the fact that one part of the VTB sells to another part of VTB was rather odd and we certainly did not see much of transparency. We wanted to buy out the shares of all investors in the company and to refinance the debts. This would have been our offer, this is what we told to the seller and the government. They chose to go the other way and we decided that we cannot be part of the procedure, and furthermore our offer did not meet the requirements of the auction. Practically, we were kicked out as we did not follow their rules and they weren’t logical from market point of view.

Do you think that a future round of the sale would go in a different way?

The situation is very unstable and I do not know how a next round would look like. We continue to be interested and in contact, as we are owners who seek long-term investments, we invest in the assets in order to develop them. We are not Russian bank, which owns the assets. We are people who are dedicated to the industry, both me and the CVC. It’s a nice, good business and deserves to be given the opportunity to develop from its current level to the next levels.

In your non-binding offer you evaluated the company at EUR 850 million. Is that the limit?

I don’t know what the final answer is but I can say that the price is reasonable. Much better price than the one that was paid. This is a realistic, reasonable price.

As far as we know they are looking for at least a billion euro now. Have you heard anything similar?

I don’t think it’s very likely, and I don’t think it can be done, as at the moment the global financial markets are unstable and do not allow the payment of such amounts.

Why do you find the BTC interesting?

I have been in this business for a long time now and I find it interesting because I was always interested in the industry. I have experience in Eastern Europe since the fall of the Berlin Wall. I started in Hungary, the Czech Republic, Slovakia, Poland, Romania, and Slovenia. All those assets are now part of Liberty Global, who bought my company. Today’s market value of those assets amounts to billions of US dollars. We have built major businesses, we have extensive experience and as I was looking at BTC - quite well managed and with good positions on the market, I decided that it is a good opportunity and I think that I can manage its development from now on.

What are the weak spots of the company?

The competition on the market is very strong. This is not particularly a weakness of the company, but the market is very competitive. The average monthly profits per subscriber are very low, as there are numerous companies in the fixed internet business. Approximately 50% of the market belongs to the small independent providers, but I also see this as an opportunity, because I believe that this market will consolidate. The entire telecom industry, however, is declining by 5-6% compared to 2010. This kind of worried us when we started looking at the company, but I repeat – the company is rather well positioned, it is strong and has cover and positions in the entire country. The traditional voice business is declining everywhere. The wholesale prices for incoming traffic are very low, but generally, the company achieved quite impressive operating profit, I think it was almost 40% of the revenues, which is very good for the telecom, and therefore I believe that the advantages outweigh the disadvantages.

Do you know whether other investors are interested in the BTC and whether they are in contact with the new owners?

I am not sure, I am not aware whether someone is having discussions with them. I think that everyone has the one and the same problem – there are too many uncertainties and this disqualifies many investors. You should be like me – willing to take risks, deeply interested in the business, and considering the way the deal was conducted, you have to devote a lot of time in order to pay attention to everything that is happening backstage. There are always people who may see a good opportunity and decide to participate, but I don’t think that there are many investors who will really do it.

Do you know when the next procedure will start?

The current transaction has to be finalized first. It may take a lot of time, before the next sale. There are legal and political issues that need to be settled, so it’s hard to predict.

How do you see yourself – more like a strategic or financial investor?

I look at things strategically and I built my businesses on the basis of long-term growth. This business requires large capitals. You can’t just buy it and resell it as if it’s a real estate property. This is something that requires a lot of resources and attention.

How long do stay in a company and what does it depend on?

It depends. The first company exists for twenty years now and is still active and now is a part of Liberty Global.

You are now active in Africa. Which are the other attractive markets for you?

I find Africa to be an interesting market. There is а rapid growth. I am keeping my eyes open for some opportunities in Australia and New Zealand, also in Asia. There are almost no opportunities in the USA now, as the market is quite consolidated. In Europe from time to time. I find Eastern Europe very interesting.

What about the Balkans?

I would not exclude them as an opportunity, especially if I manage to enter in Bulgaria together with the CVC. This will be a good base for us to expand the region.

Again in the telecommunication industry?

Yes, telecommunications and media.

Would you be interested in anything else in Bulgaria?

If you imply investments in real estate, I do make such from time to time, but on a general basis I try to stick with the things I am familiar with.

What is to be expected to happen in the foreseeable future between you and the owners of BTC?

We are not having official discussions. We established contact in order to be sure that the owners are aware of our ever so existing interest in the assets. We will be following the process closely and will see what we will have to do. Whatever happens from now on, this will have to be a deal at full price. All involved should be pleased with it – the government, the minority shareholders. I have never seen anything like it. VTB buying from VTB.

And that would have been my next question. Have you ever seen anything similar?

I really cannot remember. These are quite unusual circumstances. A very odd process for a very large asset.

Do you think that they will immediately resell the company or they will try to run it for a while?

They did not clearly announce their plans, so I cannot say. You will have to ask them. If we were the owners of the company, we would manage it as a long-term strategic investment. The company is ranked first in many of the market categories, and it can even become better. I don’t think that a group of people and a banker without any strategic experience can provide good return. The company needs strategic investors with western corporate experience, which we have. There isn’t an official process that we are involved in at this time, but I think that the current situations shows that the ownership will soon yet again change or the company will be stabilized and then the change will occur. We devoted a lot of time for the company and we are interested in staying close to it.