PRAGUE - Spanish telecommunications operator Telefonica is to buy Czech operator Cesky Telecom after the Czech government approved the sale Wednesday, Finance Minister Bohuslav Sobotka announced.
Telefonica offered 82.6 billion koruna (2.8 billion euros, 3.5 billion dollars) for the state's 51.1 percent stake in the fixed-line telecoms operator, a figure well above expectations.
"The government decided on just one criteria -- the offered price," said Sobotka.
The government had originally counted on offers of around 60 billion koruna for its majority stake in Cesky Telecom -- the country's largest privatisation to date -- but the company's share price had soared in recent weeks.
"I expect the transaction to be settled in the middle of the year," added Sobotka.
The contract is expected to be signed by the end of the month. Telefonica will pay 10 percent of the price within four days of signing and the rest once the deal is finalised, pending European Commission approval.
"We expect the deal to be completed in the first half of this year," Petra Krainova, spokeswoman for the government's privatisation agency The National Property Fund told AFP.
The government's privatisation commission had recommended the Spanish operator as the winner of the tender after it outbid Swiss rival Swisscom's offer of 79.2 billion koruna and Belgian firm Belgacom's offer of 67.5 billion koruna, said Krainova in a statement after the deadline for bids closed last week.
A fourth sealed bid -- from a financial consortium led by French group France Telecom -- was not opened.
"The reason was conditions laid out by the applicant were disadvantageous, unacceptable and in the end result could have harmed the sucessful completion of the transaction," Krainova explained.
According to media reports, instead of submitting a fixed bid, the consortium had set a condition that the amount would depend on the telecom operator's share price.
The deal marks Telefonica's first move into central and eastern Europe.
"Telefonica's purchase is good news for Cesky Telecom. It is a renowned telecom company and Cesky Telecom will benefit from its wide experience in product marketing, launching new products and 3G technology," Prague-based analyst Emilia Zampieri told AFP, adding that the price was surprisingly high.
"This could be a start for Telefonica in the region and it could perhaps look for further acquisitions in the region, either directly or through Cesky Telecom," she added.
Cesky Telecom has said it is currently looking for acquisitions in Europe as it aims to become the leading operator in the European Union in terms of its financial and operational performance.
The Czech operator, which posted a 2004 net profit of 5.6 billion koruna, operates almost 3.4 million fixed lines and owns the leading Czech mobile operator Eurotel.
"Cesky Telecom is an attractive company which is healthy, has a lot of cash and is not in debt. It also has a strong market position and even though the mobile market is close to saturation there is still significant potential for ADSL Internet and UMTS products," said Zampieri of Patria Finance.
Mobile penetration in the Czech Republic exceeded 100 percent last year. According to Czech news agency CTK Telefonica does not plan to spin off mobile division Eurotel.
With a government crisis rumbling on and the Social Democrat-led government of Stanislav Gross surviving a vote of no confidence last Friday only thanks to the implicit support of the Communist Party, however, there had been concerns that the sale could be delayed.
In the end those fears proved unfounded but the Cabinet which approved the sale to Telefonica Wednesday included five ministers who had handed in their resignation over the past five days.
The government last tried to sell the operator in 2002, but the winner, a group that included Deutsche Bank and TDC, failed to agree on the terms of a buyout of the minority shareholder TelSource.
This time round ministers had retained the right to sell its majority stake in Cesky Telecom on the financial markets, where the rest of the company's shares are traded, in case agreement could not be reached with a strategic investor.

04/06/2005 14:58 GMT