Portugal Telecom Bid For Brazil Telemar Unlikely, For Now"

SAO PAULO -(Dow Jones)- A bid by Portugal Telecom for Brazil's largest telecom operator Tele Norte Leste Participacoes, or Telemar, is unlikely in the short-term, as it would hit regulatory obstacles.

But Brazil's largest telecom operator is likely to remain an acquisition target, analysts said Tuesday.

Telemar common shares rose as much as 12% Tuesday morning on speculation of an imminent Portugal Telecom offer, before falling back as the problems facing such a bid became apparent.

At 1815 GMT, Telemar common shares were 3% higher at 52.3 Brazilian reals ($24.44). Preferred shares were 1% higher at BRL36.14. The benchmark Ibovespa index was 1% lower at 38,117 points.

The main sticking point to a Portugal Telecom bid is that it is itself the subject of a hostile takeover attempt by Portuguese conglomerate Sonae, and Portugal's securities law prevents it from making major acquisitions while this process is underway.

The Sonae bid is unlikely to be completed before September, and could be extended further if new proposals are made, noted Roger Oey, telecom analyst at the Banif Investment Bank, in an interview with the local Estado newswire.

Meanwhile, Telemar is not only Brazil's largest fixed-line operator, its Oi wireless unit had 10.4 million clients and 850,000 broadband clients at the end of 2005.

Portugal Telecom jointly owns Brazil's largest mobile telephone operator, Vivo Participacoes, in partnership with Spain's Telefonica Moviles.

Under Brazilian law, Portugal Telecom would be prohibited from owning two competing wireless firms.

"The rumors didn't make much sense; Such a bid raises a lot of questions," said Felipe Cunha, telecom analyst at the local Brascan bank in Rio de Janeiro.

The idea that Portugal Telecom would quit Vivo, and then go after Telemar, has been discussed by the market for some time.

"But to leave the growing mobile sector to buy into the fixed-line market would go against the international trend away from wireline assets," said Brascan's Cunha.

A Portugal Telecom spokeswoman in Lisbon said, "The company's policy is not to comment on market rumors."

A spokeswoman for Telemar also said the company would not comment.

Telemar, however, is controlled by a group of financial investors and government banks. As there is no telecom company in the group, investors have often speculated they would be pleased to sell at the right price.

"The investors have never said it, but it is obvious that they aren't telecom operators and don't see this as a long term investment," said Luciana Leocadia, telecom analyst at BES Securities in Rio de Janeiro.

For many analysts, this rumor was just circulated to boost the share's standing in the short term.

Telemar shares are currently trading at a major discount and therefore it is no surprise that this rumor, however unfounded, gave them a boost, said Leocadia.

But given the perception that Telemar could be up for sale, bid rumors are likely to arise at various points this year, reflecting the fact that the international trend in telecom markets is for consolidation, said Banif's Oey.

-By Alastair Stewart; Dow Jones Newswires; 55-11-3145 1479; alastair.stewart@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 11th April 2006