iBest valuation based on assets supplied by Brasil Telecom

The fact that Brasil Telecom (BrT) is acquiring all the equity it doesn?t already own in iBest, a leading ISP and portal, for 36 million US Dollars is curious in at least one respect: In practice the incumbent local exchange carrier (through its Internet subsidiary BRTSI), is paying a hefty sum just for a brand name and for the well-known iBest Award. The ISP only began operating after BrT became a shareholder in December 2001, and even then only thanks to the telco?s own structure.
This point is duly noted in a report published early in 2003 by the Finance Ministry?s Economic Surveillance Department (SEAE), one of Brazil?s antitrust bodies. The SEAE report is under consideration by CADE, the competition tribunal called on to approve the acquisition at the end of 2001.
BrT declined to answer calls from TELETIME News asking for comments on the SEAE report and the criteria used to value iBest.

In a material event notice published this week to announce its takeover of iBest, BrT justified the price agreed as follows: ?The company [iBest] has more than 4 million registered users, 1.3m of which are active, and generates approximately 1.2 billion minutes of connections per month. It is the largest ISP in Region 2 of the General Licensing Plan.? As shown by the SEAE report, these numbers were achieved only thanks to BrT itself.
Attorneys who specialize in economic law and have carefully perused the SEAE report point out that in practice iBest has added only a brand name to BrT ever since it applied for approval of acquisition. Internet access, infrastructure and everything else that has made iBest a successful ISP has come from BrT following its initial entry. In the words of the SEAE report: ?In sum, the iBest portal (…) could not be viable without the services (…) which in turn are provided by BrT. The conclusion must be (…) that the infrastructure facilities for access and connectivity belong entirely to BrT, and are managed and deployed? by the ILEC.
Valuation
As for the valuation of iBest?s equity performed by BrT before deciding how much to pay the other shareholders (companies whose ownership structures are not described in the SEAE report but in several cases are identified as being offshore entities registered in Cayman), it?s worth making a comparison with the most recent deal. Early this year Globo bought back a 30% stake in Globo.com held by Telecom Italia for 34.5m euros, for payment not in cash or stock but in advertising time until 2005 and with the undertaking that this wouldn?t affect TIM?s campaigns in print and electronic vehicles owned by the Globo group. In 2000 Telecom Italia paid Globo 810m USD for that 30% stake in Globo.com.