Speaking at an investors meeting at Bank of America Merrill Lynch in London, Portugal Telecom CEO Zeinal Bava yesterday argued that Telefonica’s improved E6.5bn offer on Brasiltel still does not represent good value for PT shareholders.
His presentation…
Speaking at an investors meeting at Bank of America Merrill Lynch in London, Portugal Telecom CEO Zeinal Bava yesterday argued that Telefonica’s improved E6.5bn offer on Brasiltel still does not represent good value for PT shareholders.
His presentation included metrics on the Brazil’s telecoms market, growing middle class, fixed/mobile breakdown as well as the outlook for growth compared to leading global economies.
Examining data on telecoms mergers in Europe, the US and Brazil over the last five years, Portugal Telecom says that “considering precedent transactions, [Telefonica’s] announced synergies lack ambition”. If the deal goes through, Telefonica expects to derive E2.8bn in synergies including revenue synergies and tax credits (versus combined Vivo/Telesp opex and capex of some $57bn over the next five years).
These precedent deals included the proposed Orange Switzerland/Sunrise (E2.1bn in operating synergies), Orange UK/T-Mobile UK (E4bn), TIM Brasil/Intelig (E1.4bn) and Oi/Brasil Telecom (E4.5bn).
Considering Brazil’s strong growth potential and likelihood that Vivo will benefit from rising fixed-mobile migration and mobile broadband penetration, while also taking into account the lack of market consensus as well as alleged inadequate synergies acquisition multiples, the operator’s board concludes: “The offer does not reflect the strategic value of this asset for Telefonica”.
Portugal Telecom urged shareholders not to consider Telefonica’s threats to liquidate Brasilcel or block dividends at the subsidiary, since its lawyers had determined that this represents intimidation and “an unreasonable attempt to frustrate its joint venture partner”.
If it rejects the offer, PT says it will continue working to ensure the success of Vivo while remaining open to further discussions representing value for shareholders.
Conversely, if Portugal Telecom opted not to put the funds towards M&A, it could pay down some of its E5.57bn in debt or pay shareholders a special dividend. Conversely, if it did sell the stake, it “expects” to use the proceeds on “general corporate purposes, including future investments, financing of capital expenditure, repurchase of shares and distribution to shareholders”. Despite declaring that it would endeavour to maximise shareholder value, the operator stopped short of promising that a all or part of the proceeds would be returned to shareholders.
Bava concluded by providing details n the technicalities of the EGM. He said that the vote would be based on a simple majority (50% of those present), with the golden share not invoked. The chairman of the EGM would decide whether or not to give Telefonica the right to vote. If the EGM votes to accept the offer, the board will then decide which of Telefonica’s takeover scenario to employ.