Banks clear TEM offer for Telefónica Móvil

Tuesday, June 22, 2004

Telefónica CTC Chile (NYSE: CTC) cut the best deal possible with Spain's Telefónica Móviles (NYSE: TEM) to sell its mobile unit Telefónica Móvil, according to a report by two investment banks.

"We have assumed that the terms of the transaction as established in the offer are the most beneficial from the point of view of [CTC] which could be negotiated [with TEM]," the banks said in a statement published by CTC.

The two banks - ABN Amro and JP Morgan - stressed that their conclusion should not be taken as a recommendation, because there are no alternative offers with which to compare TEM's bid.

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It is not surprising that the two banks found the price to be reasonable, according to Christian Moreno, telecoms analyst at Santander Investment, who also believes the terms are reasonable.

What is more important is to establish the strategic impact of the sale, he said. The mobile unit is an important part of CTC's future growth prospects, and by selling CTC will also sacrifice future investment opportunities because it would not be the only investment vehicle for Spain's Telefónica (NYSE: TEF) in Chile.

Furthermore, CTC's shares will lose liquidity, although the core fixed line business will continue to be a good cash generator, he added.

The CTC board commissioned an independent evaluation of the offer late May because Telefónica Group's 43.6% stake in Telefónica Móvil has led to concerns that TEM could dictate the price of its choosing.

The CTC board is scheduled to convene a shareholders' meeting by July 17 for shareholders to vote on TEM's offer.