Investors were evidently put out by news of Embratel?s takeover bid for AT&T Latin America (ATTL). Embratel preferred (PN) fell 2.7% to 6.12 Brazilian Reals in São Paulo. In New York the ADR fell 2.82% to $10.33. ATTL gained 50%, although that means little because the stock price is symbolic ($0.09).
Analysts say the market response reflected lack of information on the implications of the deal, particularly financial, rather than a value judgment on the deal itself. Victor Martins, an analyst with Banco Safra, notes for example that there are plenty of ?ifs? about the information available so far. According to the announcement, Embratel has signed an agreement to buy ATTL?s subsidiaries in Argentina, Brazil, Chile, Colombia and Peru, all of which operate data services. Not only did the announcement omit any reference to financial issues but it indicated that a final decision depends on an auction to be based on Embratel?s winning bid in the initial tender. Moreover, even if Embratel wins in the end, the deal still has to be approved by the U.S. bankruptcy court in charge of the case and it?s impossible to tell how long that would take.
It?s worth recalling that ATTL has substantial debts amounting to 1.038 billion US Dollars. The parent company owes 833m USD, unpaid bills to suppliers total 170m USD, and banks are claiming 35m USD. Neither Embratel nor ATTL has so far commented on how they would handle the debt. In a notice to CVM, Brazil?s securities regulator, Embratel promised only to disclose more information if it wins the auction.
In Brazil, GVT and the Atrium/Comsat consortium confirmed their participation in the bidding for ATTL but didn?t say whether they will stay in the race.
Analysts with Bradesco and Sudameris say Embratel could boost expansion by taking over ATTL?s subsidiaries throughout the region. Its corporate data service already covers Brazil?s most important areas, such as São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Brasilia. It has a foot in the door in Argentina and a license to operate in Chile, but so far nothing in Colombia or Peru. ?There?s plenty of potential for synergy,? said Petros Georgios, an analyst with Sudameris, to Reuters.
It?s the financial issues that have analysts worried. Embratel is showing a profit again this year after a long run in the red, but in mid-August signed an agreement with Qualcomm to buy Vesper, a competitive local exchange carrier in São Paulo and Rio. Where will it find the money for yet another acquisition? MCI, Embratel?s parent, won?t be forthcoming and its own existing debts start to mature in the middle of 2004.