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Old 03-05-2004, 14:30   #1
Roguish Lawyer
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BellSouth to sell LATAM wireless assets

http://www.forbes.com/newswire/2004/...tr1287879.html

UPDATE 2-Telefonica poises for BellSouth S.America deal
Reuters, 03.05.04, 10:02 AM ET

By Kirstin Ridley

LONDON, March 5 (Reuters) - Telefonica <TEF.MC>, the largest telecoms group in the Spanish-speaking world, is just days from a deal worth up to $6 billion to buy U.S. carrier BellSouth Corp's (nyse: BLS - news - people) Latin American wireless assets, a source close to talks said on Friday.

"Talks are continuing in the U.S. and an agreement looks close, although it's unlikely to be announced today and more likely at the beginning of next week," the source told Reuters.

After years of on-off talks, Telefonica and BellSouth have begun exclusive negotiations about a deal that would boost the Spanish giant's exposure to fast-growing Latin America and allow BellSouth to raise cash for a joint $41 billion U.S. takeover.

Telefonica said on Thursday it was in talks to buy assets valued at $5.5-$6.0 billion in 10 Latin American countries from BellSouth, which needs to fund its share of a purchase of U.S. mobile phone rival AT&T Wireless Services Inc. (nyse: AWE - news - people).

But Telefonica, which is facing stalling domestic growth as competition gnaws, has cautioned that it is premature to talk about a purchase price that could depend on regulatory issues.

Buying BellSouth's holdings in countries such as Venezuela, Colombia, Argentina, Peru and Nicaragua, would boost Telefonica's mobile arm Telefonica Moviles' <TEM.MC> 30 million subscriber base by about 10.5 million, bringing it closer to its goal of 50 million.

In Madrid, Telefonica declined to comment on how talks were progressing or when they were likely to be completed. BellSouth officials did not return calls.

Telefonica shares slipped almost one percent to 13.09 euros by 1415 GMT.

FINANCING TALKS

While bankers scramble for a mandate from the Spanish group -- one called recent developments "pretty chaotic" -- others noted that financially-powerful Telefonica had recently explored loan market options for an acquisition.

"We priced a generic acquisition financing for Telefonica a few weeks ago," said one banker.

Telefonica, Europe's third-largest telecoms operator by market value, is not expected to encounter problems raising financing. The group generated free cash flow of around 8.9 billion euros ($10.85 billion) last year, carries relatively low debt and has a mid-investment-grade credit rating.

Some analysts say it might be under pressure to secure a quick deal, or risk having to face off rival bidders such as Italy's Telecom Italia <TLIT.MI> and Mexico's America Movil <AMXL.MX> (nyse: AMX - news - people), Latin America's largest mobile operator.

The market is braced for a deal.

Goldman Sachs downgraded the Spanish group's 92-percent owned cellphone arm Moviles, which it is expected to use as an acquisition vehicle, to "in-line" from "outperform", and said Telefonica's valuation indication of the deal looked "probably fair, but certainly not cheap".

The investment bank said if one extrapolated earnings before interest, tax, depreciation and amortisation (EBITDA) of the last quarter of 2003 over a 12 month period, Telefonica's valuation estimate of the assets, which includes debt, implied an enterprise value to expected 2004 EBITDA of 5.6-6.1 times.

America Movil trades at around 7.1 times EV/EBITDA for 2004, but Goldman said the discount was appropriate as the Mexican-based group had a greater scale and better country mix.

"Venezuela, Argentina and Colombia make up 61 percent of the BellSouth proportionate subscribers," the bank said. "Venezuela, with higher than average political risk for the region, contributes 31 percent."
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