Mexico's Telmex May Raise Portugal Telecom Stake

MEXICO CITY -(Dow Jones)- Mexico's largest fixed-line operator Telefonos de Mexico, or Telmex, might consider raising its stake in Portugal Telecom, a company official said Friday.

"We'll be looking at the price and based on that make a decision" on further share purchases, Telmex spokesman Arturo Elias Ayub told Dow Jones Newswires.

Earlier Friday, Portugal Telecom said Telmex has become one of its top shareholders with a 3.4% stake. The surprise emergence of Telmex as a top shareholder comes as Portugal Telecom tries to fend off a hostile EUR10.7 billion takeover bid from domestic rival Sonaecom.

"It's a financial investment," said Elias Ayub, adding that Telmex had built up its position in Portugal Telecom over the last several weeks. "We think it is going to have a good return."

In May 2005, Telmex and related companies controlled by Mexican billionaire Carlos Slim sold a 13.4% stake in U.S.-based long distance carrier MCI Inc. to Verizon Communications for about $1.1 billion.

Slim built up the position in MCI through the purchase at discount of debt in its troubled forerunner, WorldCom.

"If it's a financial investment I see no reason to be worried. Telmex is always looking for companies and countries in which to invest its money. They invested in MCI and that was a very good investment," Vector brokerage senior analyst Manuel Jimenez said.

Analysts say Vivo - Brazil's largest mobile operator which is jointly controlled by Portugal Telecom and Spain's Telefonica - may be the reason Telmex has acquired a stake in Portugal's largest phone company.

Vivo competes with the Brazilian unit of Mexican wireless company America Movil, which along with Telmex is owned by Carlos Slim.

Brazil is America Movil's second-largest market after Mexico, with over 20.9 million subscribers at the end of June. Telmex is also building up its presence in Brazil, where it controls a cable TV operator and long distance carrier Embratel Participacoes.

Sonaecom Chairman Belmiro de Azevedo has said he would consider selling the Vivo stake if his company gains control of Portugal Telecom.

Telefonica has said it's willing to buy that stake and gain complete control of Vivo, its largest subsidiary by subscribers. Telefonica is also one of Portugal Telecom's top shareholders, which has fueled speculation that it could support the Sonaecom bid in exchange for Vivo.

Telmex's American Depositary Receipts were up nearly 0.4% at $24.15, less than an hour from Friday's close. Meanwhile, the American Depositary Receipts of Portugal Telecom were down 0.6% at $12.52.

-By Ken Parks, Dow Jones Newswires; (5255) 5080-3453; ken.parks@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 12th August 2006