Portuguese telcos battle for control

Sonaecom increases bid offer ahead of crucial meeting

LISBON — In a last roll of the dice, Portuguese telco Sonaecom has upped the stakes yet again in its bid to buy rival Portugal Telecom, which owns the country’s leading pay-TV company, TV Cabo. Shareholders will give their final answer on Friday.

After repeated rebukes by PT’s board of directors, Sonaecom has made a final offer to PT shareholders, maintaining its offer price of Euros 10.50 ($13.90) a share, and announcing an ambitious Euros 5.7 billion ($7.53 billion) shareholder remuneration plan for the period 2007-2010, worth Euros 5.10 ($6.74) a share.

In an eight-page memorandum, Sonaecom launched a searing attack on PT’s recent rejection of Sonaecom’s offer and accused the PT’s board of wanting to “have its cake and eat it. ”

In particular, Sonaecom asserts that PT’s own shareholder remuneration plan offers vague promises in terms of share buyback prices and that the offer to distribute 181 million PT Multimedia shares to shareholders will reduce the group’s assets by an estimated Euros 3.5 billion ($4.62 billion) and consequently its share price.

By way of contrast, Sonaecom has now complemented its basic offer of Euros 10.50 ($13.90) per share with an ambitious remuneration package including a generous dividend package.

The dividend package includes a commitment by Sonaecom not to pay dividends to itself for a five-year period, but to pay dividends of Euros 5.10 ($6.74) per share to all other shareholders for the period 2007-2010.

Sonaecom also pledges that if, as a result of its takeover bid, it secures more than 60% of PT’s shares, it will launch a public offer of sale of this excess amount to existing shareholders on a pro-rata basis, at the market price subject to a minimum of Euros 10.50 ($13.90) per share, within three months after completion of its tender offer.

The crucial difference between the two remuneration packages offered by PT’s board and by Sonaecom is the question of PT Multimedia, which reps more than 80% of the local cable and satellite market, and is a crucial player in the Portuguese telecommunications and media landscape as the country enters the digital age.

PT admitted Tuesday that if Sonaecom’s bid fails, PT’s own shareholder remuneration package, including distribution of PT Multimedia shares, will result in a 20% drop in PT’s share price from the present Euros 10.10 ($13.30) a share to Euros 8.38 ($11.10).

Sonaecom claimed that the downward spiral in PT’s share prices may be even steeper given that analysts estimate that PT’s true current value, including PT Multimedia, is Euros 8.58 ($11.30) per share.

Sonaecom asserts that PT Multimedia is overvalued by 100%, in comparison with other European cable operators.

These tense last minute moves are in anticipation of PT’s general meeting on Friday, where shareholders must vote on whether or not to remove the state’s golden share in PT, which is essential if Sonaecom’s offer is to proceed.

PT’s two largest shareholders, Santander and Banco Espirito Santo (both with 10% of stock) have announced opposite intentions — the former will vote in favor of removing the golden share, the latter against.

In light of European Union guidelines, the state’s golden share in PT will inevitably disappear in the near future, but if it is upheld in Friday’s vote, Sonaecom will be barred from launching another takeover bid until 2008.

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