Portugal Competition Authority Sends PT Bid To Phase II

LISBON -(Dow Jones)- SonaeCom's EUR11.1 billion bid for its much-larger rival Portugal Telecom requires further study by the domestic competition authority, an AdC spokeswoman said Tuesday.

She confirmed a news report that SonaeCom and PT have been informed that the AdC's investigation of the proposed merger will move to phase two, giving the regulator 90 days to further analyze the potential impact on competition.

During the second phase, SonaeCom will be able to propose remedies for competition issues raised by the regulator, the spokeswoman said.

A SonaeCom spokesman confirmed the notification, and said it was what the company had expected all along.

He said that while it was important that the regulator moved quickly in ruling on the merger, it was even more important that the final decision be credible.

A PT spokesman was not immediately available to comment.

PT has called SonaeCom's EUR9.5 a share offer hostile, saying it seriously undervalues the company. Its board has called on shareholders to reject the offer, and has proposed to pay out EUR3 billion in dividends and share buybacks over the next three years if the offer is rebuffed.

SonaeCom, the telecoms unit of conglomerate Sonae SGPS (SON.LB), says acquiring PT will create a Portuguese telecoms champion with the size to compete at home and abroad. The most controversial part of its offer is the plan to merge its Optimus mobile unit with PT's TMN mobile unit, which would shrink the market to two players from three and give the TMN/Optimus combination around 65% of the market compared with Vodafone's (VOD) Portugal unit's 35%.

The AdC spokeswoman said that competition concerns have been identified and that during the phase two investigation SonaeCom will be able to propose remedies.

The SonaeCom spokesman said it was still too early to say what potential remedies it might suggest.

The initial phase of inquiry lasted 30 days, though it was interrupted more than once as the regulator asked parties involved for additional information. The second phase can also be interrupted, meaning it could go well beyond 90 calendar days.

SonaeCom's offer won't be registered with the stock market regulator, or CMVM, unless it is approved by the AdC.

PT's shares had lingered well above the offer price on expectations either that SonaeCom would be forced to increase its offer or that a counterbid would appear.

Last week two companies, South Africa's Telkom and UAE operator Etisalat, said they had decided not to mount counteroffers. A group of seven investors, including some of the world's biggest private equity houses, are also said to be considering an approach, though so far no formal proposal has appeared.

On Tuesday PT shares fell below the offer price for the first time since the bid was announced in February, ending at EUR9.42 a share. But part of that was a technical correction as the stock adjusted for its 2005 dividend of EUR0.475 a share.

Regulator's Web site: http://www.autoridadedaconcorrencia.pt

-By Erik T. Burns, Dow Jones Newswires; +351 21 319 1863; erik.burns@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 17th May 2006