Restructuring harms Brasil Telecom stock, but the company is off to a good start in its new phase
For those with little skill and meager knowledge regarding the intricate market of telecommunications, with all its ups and downs and tangle of connections, assessing the behavior of these companies' stock may be quite complicated. Starting with the company in question — Brasil Telecom. A quick, careless look could crucify the entire company just because one of its shares it not doing well and insists on nosediving during the trading day.
Better known as BrT, the company was born from the rupture of monopoly in Brazilian telecommunications, in 1998. At that time, there was a fixed–line operator serving the states of Acre, Rondônia, Tocantins, Mato Grosso, Mato Grosso do Sul, Goiás, Paraná, Santa Catarina, Rio Grande do Sul, and the Federal District. It was called Tele Centro Sul. After merging nine ex-government-owned companies and acquiring CRT from Telefonica, the patchwork quilt was transformed into Brasil Telecom. Which is now known as Oi. But Oi, in turn, was the former Telemar, born in 1999 from a merger between 15 ex-government companies (ranging northward from the state of Rio de Janeiro to Bahia, then all the way to Amazonas). Oi bought Brasil Telecom for R$ 5.371 billion in an operation completed last April.
Together, BrT and Oi — rechristened as simply Oi — are forming what the market has dubbed a "supertel". The company offers a robust menu of fixed line, mobile, internet and all kinds of telecom products. In the year's first quarter, it recorded gross revenues of R$ 11.2 billion, up 7.8% compared to the same period in 2008. It was also the telecommunication company with the highest growth in the country during the period, rounding up 1.7 million new customers and closing the year's first quarter with 57.7 million users.
Oi is not exchange-listed, however. But its parent Telemar is, through Tele Norte Leste Participações (the group's holding) and Telemar Norte Leste (the operating company). And Brasil Telecom — which is now already merged into Oi — still has outstanding shares in the stock market, segmented into shares in the holding and shares in the operating company. Neither is doing so badly, although BrT's might look like it. It depends on which shares you look at and how you look at them. If you focus on the ordinary shares of Brasil Telecom — both in the operating company (BRTO3) and the holding (BRTP3) —, you may be saddened to see that both lost value over the year. BRTP3 was down 46.18% from the beginning of the year until the first trading day of July. BRTO3 was down 31.53%. The duo of BrT ordinary shares underwent a mandatory any-and-all bid on June 23, in a transaction that moved R$ 2.564 billion in the Bovespa. The bid is part of Telemar's process of acquiring 61.2% of Brasil Telecom. It was a tag-along operation, in which the minority shareholders were entitled to sell their shares at 80% of the initial transaction's price.
During this transaction, the holding's share price was R$ 64.71. The operating company's was R$ 60.64. The minority shareholder turnout to sell was high in both cases — a fact that should remove liquidity from the ordinary shares, as analyst Alex Pardellas of broker Banif observes. "I'm not even going to track the performance of those stocks anymore", he says. "Free float will be minimal, there will be no liquidity", the telecom specialist adds.
Pardellas affirms, however, that he will look closely at the preferred shares of BrT — both the operating company's (BRTO4) and the holding's (BRTP4). He recommends buying those shares, which were quoted at R$ 13.20 and R$ 15.38 respectively on the last day of June. The depreciation of the PN (preferred) shares in recent months is also due to the company's tag-along operation. Given the outlook of an 80% tag-along price, many investors rushed to buy ON (ordinary) shares in Brasil Telecom, which hurt the preferred shares in the market. Now, with the forecast that the ordinary shares will lose liquidity, the PNs may come back with a bang. For the end of the year, Pardellas believes that the holding's preferred shares will hit R$ 22, while the operating company's will reach R$ 27.50.
Another analyst who prefers to remain anonymous believes that people who want to invest in Brasil Telecom should focus on Telemar stocks. In this case, they must also be patient and certify what stock they would like to bet their chips on. Telemar is exchange-listed through Tele Norte Leste (TNLP), the holding at the head of the business, and through Telemar Norte Leste (Temar), the company that implements the group's gigantic telecom operation. Both have preference and ordinary shares. According to this analyst, foreign investors prefer to buy shares in the holding, which is at the head of it all. "Corporate mergers and the decisions that will be followed by the operating company come from the holding, as well as the decision on how much dividend will be paid", he observes.
Betting on the operating company's shares, however, is like investing in the heart of the company — where the enormous cash flow is and from where the dividends will certainly come. This therefore makes for a more liquid stock.