Here's some very interesting information from MS-DW I received via
email today (Thanks to the contributor!)...
Morgan Stanley\DW (Carvalho/Milberg
(212)761-4876) TBR - TELEBRAS: 12 NEW
COMPANIES TO BE LISTED IN BRAZIL PRIOR
TO U.S.
Sep 08 1998 08:50
Telebras (TBR): 12 New Companies to be Listed in Brazil Prior to U.S Luiz
Carvalho/Vera
Rossi/Josh Milberg (212) 761-4876/4484/8284
Date: September 8, 1998
Industry: Latin America Telecom Type: Company Update
______________________________________________________________________
Rating: Strong Buy Price: $60.75
52-wk Range: $148-$56 Target Price: Under Review
______________________________________________________________________
FY Ends ----EPS---- ----CEPS----
12/98 Curr P/E Curr P/CE
97A $10.89 5.6x $22.39 2.7x
98E $10.82 5.6x $21.81 2.8x
99E $12.40 4.9x $24.09 2.5x
______________________________________________________________________
KEY POINTS
-Contrary to our prior view, it no longer appears that the listing of
the 12 new shares - spin-offs of Telebr s - will occur simultaneously
in Sao Paulo and New York.
-We now expect these shares to list first on the S˜o Paulo stock exchange, by
September 19. Their
listing in New York should take place afterward, in late September or early
October.
-This change in our view is based on the consideration of a Brazilian corporate
law and the fact that
Telebr s is trading well below book value at this point.
-The corporate law, which only applies to Telebr s local market shares, requires
that distribution of
the new shares take place no later than 120 days after the spin-off was
completed. Given that the
spin-off occurred on May 22, the deadline for the local listing is September 19.
-If the new shares are not distributed to shareholders by that date, investors
have the right to return
their shares at book value. Naturally this would create a substantial liability
for the companies, as
today they trade at significantly below book value.
-This situation will likely force the CVM (the Brazilian SEC) to list the shares
by the September 19
deadline, in our view.
DETAILS:
We believe that the listing of the 12 new Brazilian telecom companies - created
during the
reorganization and sale of Telebr s - will not be listed simultaneously. In our
view, the 12 new
shares will be listed in the S˜o Paulo stock exchange before they are listed in
New York. Investors
that hold Telebr s shares that trade in the local market (TEL3 and TEL4) should
receive the 12 new
shares by September 19. The ADR holders are not likely to receive their new
shares until the end
of September or the beginning of October, after the financials of the new
holding companies have
been approved by the SEC.
The 120-Day Spin-Off Rule
A combination of two factors have made us change our view about the listing of
the shares: 1) there
is a Brazilian corporate law which regulates the timing of the spin-offs, and 2)
market weakness has
caused a significant drop in the stock price.
According to this Brazilian regulation, a company share distribution has to be
completed no later
than 120 days after the spin-off has occurred. Based on this regulation, the new
share distribution of
Telebras must occur by September 19 because the spin-off of the Telebras holding
companies took
place on May 22 of this year. The regulation holds that if the 12 new shares are
not given to
investors by the indicated date, investors have the right to return their shares
to the company at
book value (US$85 per ADR as of March 31, 1998). This situation would create a
huge liability
for the company since it would force it to buy the stock back at much higher
price than current
market prices.
The difference in the price between the book value and the price of the PN
shares was $24.25 as
of Friday. The difference relative to the ON share is even higher (US$44).
What Happens Next
We believe that the CVM (The Brazilian SEC) will be pressured by the new
controlling shareholder
to list the shares before the deadline and avoid any liability.
We understand that the CVM and the SEC have been trying to do a simultaneous
listing of the
shares. However, we now believe that the listing in the S˜o Paulo exchange will
occur prior to the
listing in New York given the 120-day spin-off rule and because of the stock
price decline below
book value.
ADR Shareholders Have to Wait More
This regulation only applies to locally traded shares. The Telebras ADRs (ticker
TBR) will continue
to trade as one stock in the US until the SEC approves the financials for all
the 12 new companies.
We believe that this approval, and the subsequent listing, should happen by late
September or early
October. Before then, the 12 new shares should be trading separately in the S˜o
Paulo stock
exchange (Bovespa).
The information and opinions in this report were prepared by Morgan
Stanley & Co. Incorporated ("Morgan Stanley Dean Witter"). Morgan
Stanley Dean Witter does not undertake to advise you of changes in its
opinion or information. Morgan Stanley Dean Witter and others
associated with it may make markets or specialize in, have positions
in and effect transactions in securities of companies mentioned and
may also perform or seek to perform investment banking services for
those companies.
Within the last three years, Morgan Stanley & Co. Incorporated, Dean
Witter Reynolds Inc. and/or their affiliates managed or co-managed a
public offering of the securities of .
Morgan Stanley & Co. Incorporated, Dean Witter Reynolds Inc. and/or
their affiliates make a market in the securities of
Morgan Stanley & Co. Incorporated, Dean Witter Reynolds Inc. and/or
their affiliates or their employees have or may have a long or short
position or holding in the securities, options on securities, or other
related investments of issuers mentioned herein.
An employee or director of Morgan Stanley & Co. Incorporated, Dean
Witter Reynolds Inc. and/or their affiliates is a director of
or a subsidiary thereof.
The investments discussed or recommended in this report may be
unsuitable for investors depending on their specific investment
objectives and financial position. Where an investment is denominated
in a currency other than the investor's currency, changes in rates of
exchange may have an adverse effect on the value, price of, or income
derived from the investment. Past performance is not necessarily a
guide to future performance. Income from investments may fluctuate.
The price or value of the investments to which this report relates,
either directly or indirectly, may fall or rise against the interest
of investors.
To our readers in Australia: This publication has been issued by
Morgan Stanley & Co. Inc. but is being distributed in Australia by
Morgan Stanley Australia Limited, a licensed dealer, which accepts
responsibility for its contents. Any person receiving this report and
wishing to effect transactions in any security discussed in it may
wish to do so with an authorised representative of Morgan Stanley
Australia Limited.
To our readers in the United Kingdom: This publication has been
issued by Morgan Stanley & Co. Incorporated and approved by Morgan
Stanley & Co. International Ltd., regulated by the Securities and
Futures Authority Limited. Morgan Stanley & Co. International Limited
and/or its affiliates may be providing or may have provided
significant advice or investment services, including investment
banking services, for any company mentioned in this report. The
investments discussed or recommended in this report may be unsuitable
for investors depending on their specific investment objectives and
financial position. Private investors should obtain the advice of
their Morgan Stanley & Co. International Limited representative about
the investments concerned.
This publication is disseminated in Japan by Morgan Stanley Japan
Limited and in Singapore by Morgan Stanley Asia (Singapore) Pte.
Additional information on recommended securities is available on
request.
Copyright 1998 Morgan Stanley Dean Witter & Co. |
