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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: wl9839 who wrote (15429)	5/20/1999 4:40:00 PM
From: wl9839	Read Replies (1) \| Respond to of 22640

DJ Minority Hldrs Question Brazil Telefonica Cell Co. Offer By Margarita Palatnik SAO PAULO (Dow Jones)--A tender offer by Spain's Telefonica SA (TEF) and Iberdrola SA (E.IBR) to buy all remaining shares in four Brazilian cellular operators has hit a snag. Telefonica launched a tender offer Monday to acquire shares in Telerj Celular SA and Telest Celular SA. Together with Spanish power giant Iberdrola SA (E.IBR), Telefonica made a similar offer for Telebahia Celular SA and Telergipe Celular SA. But a group of local fund managers controlling about 30% of the stock subject to the 550 million-real ($1=BRR1.6940) tender offer is complaining the price is based on the shares' closing value at the Sao Paulo Stock Exchange on a single trading day - even though the companies are renowned for their low liquidity. They're also claiming Telefonica is carrying out a "white de-listing", whereby - if successful - it would hold all the stock and still call the companies "publicly listed" for a period of a year. And last, but definitely not least, the shareholders say that the Spanish companies aren't offering an adequate control premium. The dissenting shareholders have contacted Morgan Stanley Dean Witter, which is managing the transaction, and Friday will discuss the matter with the Brazilian securities commission, known as CVM, according to Saul Sabba, managing director at Banco Stock Maxima who is negotiating on behalf of minority shareholders. Sabba told Dow Jones Newswires Thursday that although the group is seeking an agreement with Telefonica and Iberdrola, it's also pondering other options. "We're trying to reach a consensus, but if we don't come to an agreement, the tender is not compulsory, so we could chose to keep our shares, or we could even start buying some more stock, because we think it's cheap," Sabba said. Market participants have pointed out that the four cellular firms involved in the transaction - Telebahia and Telergipe, operating companies held by Tele Leste Celular Participacoes SA (TBE); and Telerj and Telest, holdings of Tele Sudeste Celular Participacoes SA (TSD) - are likely to increase significantly their dividend payments due to their strong cash-flow. "The dividend payout is the reason why it's not worthwhile for shareholders to sell," Sabba said. "They may be better off staying on as investors." Another fund manager with stock in the affected companies agrees. "The price they aspire to pay shareholders is too low. If you look at the cash-flow and at the dividends they should have, it's too low," said Rodrigo Machado, who manages second-tier stocks for Banco Opportunity. Offer Price On Some Cos. Well Below Book Value Telefonica declined to talk about the issue, but replied in a written statement that the tender offer is voluntary and not compulsory for shareholders, and that the price was set by the market. More importantly, Telefonica also replied that the companies' book value wasn't taken into account in assessing the offer price, "because it doesn't reflect accurately the market's expectation with relation to future performance." But with market participants widely assuming that Telefonica will in a year delist the operating cellular firms and absorb them into Tele Sudeste and Tele Leste, book value is a relevant consideration: Brazilian law establishes that in such mergers shareholders must be bought out at book value. At current offer prices, Telerj and Telebahia are at or above book value, but thinly-traded Telergipe's price represents just 0.57 times book value, and the amount offered for Telest only comes up to a 0.61 ratio in the case of ordinary shares, and 0.79 for preferred stock. Local fund managers "are correct in questioning the offering price," said Deutsche Bank analyst Auro Rozenbaum. "In principle, they don't need to accept anything below what the law establishes," he added, cautioning that price/book value may not be the only consideration in evaluating whether to tender the shares. As for book value as a reflection of market expectations of future performance, Rozenbaum said that "the market will be the one to decide, and not Telefonica." A joint venture owned by Telefonica and Iberdrola acquired a 19.26% stake in Tele Leste and Tele Sudeste during the July privatization of former monopoly Telecomunicacoes Brasileiras SA (TBR). Telefonica and Iberdrola paid $365.8 million - 242% more than the minimum asking price - for Tele Leste Celular, which serves an area with a population of some 14 million in the northeastern states of Bahia and Sergipe. The group bought Tele Sudeste Celular for $1.16 billion, 139% above the government's asking price. Tele Sudeste covers the states of Espirito Santo and Rio de Janeiro, with a population of 16 million inhabitants. Margarita Palatnik; 5511-813-1988; mpalatnik@ap.org