UPDATE 1-Latvian telco picks Blackstone as buy out partner

(Adds Lattelecom quotes)

RIGA, Sept 12 (Reuters) - Private equity firm Blackstone BX.N is to lead a consortium of banks to finance a management buyout of fixed-line operator Lattelecom and will itself invest 90 million Latvian lats ($178 million), Lattelecom said.

The buyout is part of a deal which will allow Nordic group TeliaSonera TLSN.ST to take control of main mobile operator LMT from Lattelecom and the state. Lattelecom's management is buying the fixed-line operator from TeliaSonera and the state.

“In total we need to raise 290 million lats for the government’s stake,” Lattelecom Chief Executive Nils Melngailis told Reuters after the firm announced its deal with Blackstone on Wednesday.

“What will happen now is that we, together with Blackstone, will form a new company, to be named next week, where they will invest roughly 90 million lats and the Lattelecom management will invest some 10 million lats,” he added.

The Blackstone Group is working together with a consortium of several banks, Lattelecom added.

A valuation last year put a price tag on Lattelecom of 260 million Latvian lats and a value of 668 million on LMT.

Under the deal, TeliaSonera is to get the government’s 28 percent and Lattelecom’s 23 percent shareholdings in LMT.

The move is part of TeliaSonera’s strategy to expand in emerging markets such as the Baltic states and Russia.

“After the share purchase is completed, financing will also be provided to expand Latvia’s broadband infrastructure and to develop new areas of business, including acquisitions of other companies,” Lattelecom added in a statement.

Melngailis said Lattelecom would in the future make investments into high-speed internet access and wireless solutions, such as GSM and IT outsourcing.

He said the company already an investment plan ready for the next three years.