Portugal Tel Shares Rescued By Buyback, Spinoff Plans"
LISBON (Dow Jones)--Portugal Telecom's pledges to buy back shares and spin off PT Multimedia unit have helped support its shares, despite the collapse of an EUR11.1 billion bid from Sonaecom late Friday, analysts say.
Both stocks have been trading at a premium related to consolidation expectations, but Sonaecom Monday was taking a considerably bigger hit. Portugal Telecom shares were down 3% at EUR9.6, while Sonaecom fell 16.5% to EUR4.61. The Portuguese PSI20 index ended 1.4% lower.
Soon after the bid lapse was announced, PT's Chief Executive Henrique Granadeiro reiterated PT's shareholder remuneration plan, including a dividend of 57.5 cents per share for 2008-09. He also said a plan to buy back up to 16.5% of the company's shares would start as early as Monday.
"PT's remuneration package is attractive and yield support will limit downside in the short/medium term," Bear Stearns analyst Jonathan Dann said Monday.
Dann calculates PT's fair value at EUR9.82 and rates it peer perform. That compares with the EUR9.65 current share price.
"PT's statement that it will start its buyback immediately could also help in providing some support to the stock. Therefore we see limited immediate downside to PT (5-10%, from Friday's EUR9.90 close)," said BPI analyst Ricardo Seara.
Sonaecom's attempt to win the former Portuguese phone monopoly collapsed Friday when Portugal Telecom shareholders voted against lifting a 10% voting rights cap in PT. The change in PT's bylaws was a necessary step to allow Sonaecom's bid to proceed, since it was conditional on acquiring 50.01%.
Most analysts agree Sonaecom isn't likely to launch a new bid for PT, and say shareholders should now discount any chance of a bid for PT and any associated M&A premium.
Granadeiro said the spinoff of the PT Multimedia unit, PT's first move to fend off the bid last August, would take place in 2007.
Despite market talk about Sonaecom's interest in acquiring PTM, "the possibility of Sonaecom acquiring PTM, once the spin-off is completed, should not lead investors to ascribe any M&A upside, at least for now," Seara said.
Seara said the downside to Sonaecom's shares is much larger than that of PT, possibly reaching 20%.
PT's partnership with Spain's Telefonica also looks unlikely to have a future, given what Granadeiro, late Friday, called a "strategic misalignment."
Nor is Granadeiro as willing as Sonaecom was to sell PT's stake in Vivo, Brazil's largest mobile telephone operator, of which Sonaecom and PT own 50% each.
"I don't understand why Telefonica has been mentioned as the natural buyer of Vivo, rather than Portugal Telecom. After all, Portuguese is the language they speak in Brazil," Granadeiro told reporters Friday.
Sonaecom launched its bid last year and raised it to EUR10.5 a share from EUR9.5 a share last month, bolstering a revamped remuneration pledge from PT, which included a 47.5 cents-per-share 2006 dividend, followed by 57.5 cents per share for 2008 to 2009, if shareholders rejected Sonaecom's bid.
PT also said it would pay the market price of up to EUR11.5 per share in a buyback plan of up to 16.5% of its own shares. The acquisition of PT's own shares would amount to up to EUR2.1 billion.
-By Filipa Cunha, Dow Jones Newswires; +351-21-3191863; filipa.cunha@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 6th March 2007