telebras breakup 2 weeks away !!!!!
Bidders size up partners as Telebras ball looms
By Flavia Pardini
SAO PAULO, July 16 (Reuters) - With the privatization of Brazilian telecommunications behemoth Telebras (TELB4.SA)
less than two weeks away, top international firms are busy hammering out partnerships with local pension funds, banks and
other investors.
Analysts who follow the secretive talks say negotiations over who bids with who will go right up to the July 29 auction day,
and perhaps beyond.
''The groups will only really close a few hours before the auction,'' said Sergio Goldman, a telecommunications analyst with
Banco Santander in Sao Paulo.
The consortia have until July 20 to formally qualify as bidders. But each group's precise composition may be changed to
include small partners -- accounting for less than 20 percent of capital -- even 24 hours after the auction takes place.
''I think the inclusion of small partners even after the auction will be used a lot,'' said Ricardo Caldeira, director of
telecommunications at BankBoston in Brazil.
BRAZILIAN PENSION FUNDS TOP PLAYERS
While the talks take place behind firmly closed doors, Brazil's massive pension funds are seen as the key players in Latin
America's biggest-ever privatization.
The government expects to raise $14 billion with the sale of Telebras' 12 operating companies, but financial markets expect
bidding to go higher.
Six major pension funds representing the workers of state-owned companies -- including Telebras -- will be bidders for at
least nine of the 12 subsidiaries on offer, according to a well-placed pension fund source.
Although the funds are limited by law to a maximum 25 percent stake in each subsidiary, they boast the kind of resources
most corporate players can only dream of.
FOREIGNERS SNIFFING FOR MINORITY STAKES
Communications Minister Luiz Carlos Mendonca de Barros believes local funds along with other Brazilian investors will play
a leading role in the bidding for Telebras, with foreigners happy to take a minority stake.
''Foreign companies want to include Brazil in their global networks. They don't need to actually control the companies
here,'' Mendonca de Barros told foreign correspondents on Wednesday.
The government has divided Telebras into three fixed-line companies, eight cellular units, and long-distance and international
carrier Embratel.
Caldeira of BankBoston said European telecoms, including Spain's Telefnica (TEF.MC), Telecom Italia (TIT.MI), and
France Telecom (FTE.PA), have their sights on the fixed-line companies, while U.S players like MCI Communications
Corp. (MCIC - news) and Sprint Corp. (FON - news), were interested in Embratel.
One official close to the talks said pension funds are talking with Sprint to jointly bid for Embratel. Brazilian financial group
Opportunity Private Equity was coordinating the negotiations, he said.
News reports have also linked Citicorp's (CCI - news) Citibank to the joint Embratel bid.
TELESP, THE JEWEL IN THE CROWN
Of the three fixed-line companies, the most attractive is seen as Telesp (TLSP3.SA) (TLSP4.SA), which covers Brazil's
developed Sao Paulo state and which has an asking price of $3 billion.
The pension funds are reported to be negotiating a bid for Telesp with Telecom Italia, the investment wing of Brazilian media
empire Organizacoes Globo, and Brazil's top private bank Bradesco (BBDC3.SA) (BBDC4.SA).
Spain's Telefnica -- the only foreign company to pay to see confidential data on all 12 Telebras units -- has said it might act
as a minority partner with MCI.
Telefnica is also interested in Telesp, but is likely to play only a minority supporting role in Portugal Telecom's group bidding
for the company, analysts say.
The Spanish firm's real target is believed to be another fixed-line unit, Tele Center South, which would tighten Telefnica's
grip on southern Brazil. Last year it, along with partners, acquired control of Companhia Riograndense de
Telecomunicacoes in the southernmost state of Rio Grande do Sul.
Other possible bidders for Telesp include a consortium comprising BellSouth Corp. (BLS - news), local bank Banco Safra,
and the Estado de Sao Paulo media group, analysts say.
Those companies jointly won a concession to operate B Band cellular telephone services in Sao Paulo city in 1997.
The pension funds also intend to bid for Tele North East, a third fixed-line Telebras spin-off covering densely populated Rio
de Janeiro, Espirito Santo and Minas Gerais states as well as the poor Northeast and Amazon regions.
The funds are expected to join forces with France Telecom to bid for the company.
THE CELLPHONE COMPANIES
Among the eight cellular companies, Telesp Celular in Sao Paulo state is seen as the biggest prize because of the size of its
market. But Telemig Celular, in central Minas Gerais state, is considered a well-run company and has attracted the
attentions of Lightel, part of Brazilian telecommunications group Algar.
By contrast, little interest is expected in the cellular company covering the remote north. There were no bidders for a B Band
license to operate cellular services last year and analysts expect a similar lack of interest in the A Band services.
''There's not enough per capita income in the region to sustain development of the business,'' said one market-watcher.
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