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February 7, 2006 11:33 am

Portugal Telecom shares soar on Sonae bid

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Shares in Portugal Telecom jumped 20 per cent in early trading on Tuesday as investors responded to a €10.7bn ($12.8bn) bid for the company by Sonae, a much smaller private-sector conglomerate.

The shares rose to €10 before falling back to €9.72, remaining above Sonae’s offer price of €9.5 a share, a 16 per cent premium on Monday’s closing price of €8.18.

Analysts said the price rise partly reflected speculation over the possibility of a counter-offer from rival bidders, which would have to be at least 5 per cent higher than Sonae’s bid.

However, PT shareholders are also due to receive a 2005 divided of €0.385 a share, meaning they would effectively gain just under €10 a share if they accepted the Sonae offer.

The bid, the biggest ever made for a Portuguese company, took the Lisbon market by surprise and could lead to a protracted battle for control of one of Portugal’s biggest listed companies.

Sonae, which includes Portugal’s third largest mobile phone operator among a broad portfolio of operations, has persistently challenged PT over the alleged abuse of its dominant position.

If the bid is successful, Belmiro de Azevedo, the entrepreneur who founded and controls Sonae, has made clear he would dispose of either PT’s fixed or cable network to ensure fairer competition in Portugal’s telecommunications market. 

The bid also represents a challenge to the state’s “golden share” in PT, which gives the government the power to veto strategic policy decisions.

Sonae said its offer was subject to the government agreeing to abolish these veto rights as well as on PT, a former state monopoly, lifting voting restrictions on shareholders who acquire more than 10 per cent of the group.

The government’s “golden share” is also being challenged by the European Union, which began official proceedings against Portugal in December.

A person familiar with the bid said it was unlikely Sonae would have made the offer without an expectation that it would be looked on favourably by the government.

A senior Sonae official said there had been no talks with any existing PT shareholders before the bid was announced on Monday night in a statement to Portugal’s stock market regulator, the CMVM.

Sonae did not expect PT shareholders to see its bid as hostile, he added. 

The bid is for a 100 per cent of Sonae and dependent on winning control of more than 50 per cent of PT shares.

Leading PT shareholders include Telefónica, the Spanish telecoms group, with 10 per cent, and Banco Espírito Santo, one of Portugal’s leading banks, with 8.5 per cent.

PT is about four times bigger than Sonae, whose market capitalisation is about €2.4bn.

A Lisbon banker said Banco Santander de Negócios, a Portuguese subsidiary of Spain’s biggest financial group, was Sonae’s financial adviser for the bid.

France Telecom owns 23.75 per cent of Sonaecom, Sonae’s telecom subsidiary, which controls Optimus, Portugal’s third largest mobile phone operator, as well as Novis, a fixed-line telecom service.

PT owns Portugal’s dominant fixed-line network as well as TMN, the country’s biggest mobile phone operator.

Control of PT would also give Sonae a 50 per cent stake in Brazil’s Vivo, the biggest mobile phone operator in Latin America, which PT owns in a joint venture with Telefónica.

Another part of the PT group, PT Multimedia, owns Portugal’s leading cable television company as well as other media content providers.

To comply with competition laws, Sonae would almost certainly have to dispose of important assets if its bid was successful, analysts said.

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