FOCUS Sonaecom has room to raise Portugal Telecom bid again

FOCUS Sonaecom has room to raise Portugal Telecom bid again

	Published : Fri, 16 Feb 2007 14:44 By : Agencies Print this Story

LISBON (AFX) - There is still room for Sonaecom SGPS to improve its revised 10.50 eur per share bid for Portugal Telecom SGPS if core shareholders carry out their threat to reject the improved terms, analysts said.

'We continue to rate the (Portugal Telecom) shares a 'buy' as our 12.30 eur break up value clearly indicates that Sonae has room for further negotiation with shareholders,' Lisbon Brokers said in a note to clients.

The brokerage said the the new bid is still 17 pct short of its break-up value for PT of 12.30 eur, adding that it still did not rule out a competing bid from a private equity company targeting PT's assets.

A Bear Stearns analyst agreed with Lisbon Brokers that the offer is 'not overly generous,' but disagreed that the offer still undervalues the group.

He noted that the offer 'does now include a higher takeover premium, above PT's underlying value.'

Sonaecom announced last night that it is increasing its all-cash full bid to 10.50 eur per share from 9.50 eur. The new offer is worth around 11.8 bln eur, up from the 10.7 bln initial offer.

BCP Investimento, the investment banking arm of Portugal's biggest private bank, is advising PT shareholders to not sell at current prices.

'Given our fair value for PT (11.50 eur per share), we recommend its shareholders not to accept the tender offer. However, the valuation gap in PT is closing further,' it said.

Core shareholder Banco Espirito Santo, which owns about 8 pct of PT, Ongoing Strategy and Joe Berardo, with about 2 pct each, were quick off the block this morning to reject Sonaecom's higher offer.

Lisbon Brokers said opposition from core shareholders means that Sonaecom may still be defeated at the March 2 EGM, where it is proposing that shareholders remove the 10 pct voting right limitation.

Sonaecom needs two thirds of PT shareholders to vote in favour of removing the 10 pct voting rights limitation for the motion to be passed.

Bear Stearns said that the new offer is at the low end of PT management's implied fair value. It added that 'gaining board approval is critical to Sonaecom's chances of successfully removing PT's ownership restrictions.'

Analysts have also sharply hiked their price targets for the Sonae group in the case the bid succeeds.

After the bid hike was announced, shares in Sonaecom and its parent company Sonae SGPS, which owns owns 60 pct, surged in heavy volume.

At 1.00 pm, Sonaecom had soared 1.15 or 18.05 pct to 7.52, while Sonae shares climbed 0.18 or 9.89 pct to 2.00.

'Our new valuation of Sonaecom, in the event of 100 pct success in the tender offer, would increase from 5.10 eur to 11.40 eur per share,' BCP Investimento said.

Lisbon Brokers said it continues to 'rate the holding company Sonae a 'strong buy' with a fair value of 2.20 eur per share and an admittedly conservative success value of 2.80 eur per share.'

PT shares were down 0.01 at 10.28 eur, remaining below the new bid price as some brokers took a more negative view. West LB said that by improving its bid for Portugal Telecom, Sonaecom is 'already giving away all the synergy benefits to Portugal Telecom shareholders as far as we are concerned.

'There is little point in changing our recommendation on Portugal Telecom from 'sell' as we believe there is still a high risk of failure and the whole deal falling apart; though clearly the share price should hover at or above 10.5 for the time being,' the German broker's analysts said in a note to clients.

Shares in majority owned cable unit PT Multimedia jumped 0.39 eur or 3.76 pct to 10.75 eur amid hopes Sonaecom may also improve on its 9.03 eur per share bid for the sister stock after keeping mum about it in its statement on PT.

luis.morais@thomson.com

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