An unforeseen result of Telesp Celular?s capital increase, according to analysts, is that Portugal Telecom?s assets in Brazil now exceed those of Telefonica Celular in value. This inverts the original imbalance in the joint venture under formation in the mobile segment by Telefonica and Portugal Telecom, which controls Telesp Celular. Telefonica must therefore pursue new assets to contribute 50% to the new company?s capital. It?s worth recalling that when plans for the joint venture were announced in January 2001 Portugal Telecom said it would appoint the CEO and Telefonica Celular the chairman.
Telefonica Celular is expected to offer BDRs in the parent company in exchange for shares in its mobile subsidiaries, as it did with Telesp, the fixed-line incumbent for São Paulo State. In this case the swap will apply to shares in Tele Leste Celular and CRT. It may also buy back stock, especially in Tele Sudeste Celular, since its stake in this telco is proportionally higher. Another possibility would be to make up the difference in cash or pursue acquisitions to complete coverage, presumably TCO and Telemig Celular. The problem here is that these acquisitions would be too large in value, once again producing an imbalance in the joint venture.
Whatever the solution, Telefonica faces major obstacles because of the economic environment. It would obviously rather opt for a stock swap but the equity market is hardly propitious. The other options would involve substantial disbursement, and investors are already averse to increased exposure to Brazil. In any event there?s room for potential speculative moves in the equity market, especially relating to Tele Sudeste Celular.