CONSIDERATIONS ON SONAECOM’S OFFER ON PORTUGAL TELECOM—MARCH 2006
English_General
This presentation does not constitute an offer or invitation to purchase any securities or a solicitation of an offer to buy any securities, pursuant to the
proposed offer (the “Offer”) for the shares of Portugal Telecom, SGPS, S.A. (“PT”), or otherwise. The Offer will be made solely by an offer document
containing and setting out the terms and conditions of the Offer (the “Offer Document”) and the letter of transmittal and form of acceptance (the
“Acceptance Forms”), which will contain details of how the Offer may be accepted. In the United States, Sonae, SGPS, S.A. (“Sonae”), and Sonaecom,
SGPS, S.A. (“Sonaecom”), will be filing a Tender Offer Statement containing the Offer Document, the Acceptance Forms and other related documentation
with the US Securities and Exchange Commission (the “SEC”) on Schedule TO (the “Tender Offer Statement”) and PT is expected to file a Solicitation/
Recommendation Statement on Schedule 14D-9 (the “Solicitation/Recommendation Statement”) with the SEC after the Offer Document is made available
to PT shareholders. Free copies of the Tender Offer Statement, the Solicitation/ Recommendation Statement and the other related documents to be filed
by Sonae or Sonaecom and PT in connection with the Offer will be available from the date the Offer Document is made available to PT shareholders on the
SEC’s website at http://www.sec.gov. The Offer Document and the Acceptance Forms will be made available by Sonaecom or its duly designated agent to
all PT shareholders at no charge to them. PT shareholders are strongly advised to read the Offer Document and the Acceptance Forms, and any other
relevant documents filed with the SEC, as well as amendments and supplements to those documents because they will contain important information. PT
shareholders in the United States are also advised to read the Tender Offer Statement and the Solicitation/Recommendation Statement because they will
contain important information.
Unless otherwise determined by Sonae and/or Sonaecom and permitted by applicable law and regulation, the Offer will not be made, directly or indirectly,
in or into, or by use of the mails of, or by any other means or instrumentality (including, without limitation, telephonically or electronically) of interstate
or foreign commerce of, or of any facility of a national securities exchange of Canada, nor will it be made in or into Australia or Japan and the Offer will
not be capable of acceptance by any such use, means, instrumentality or facilities from or within Australia, Canada or Japan. Accordingly, unless otherwise
determined by Sonae and/or Sonaecom and permitted by applicable law and regulation, neither copies of this presentation nor any other documents
relating to the Offer are being, or may be, mailed or otherwise forwarded, distributed or sent in or into Australia, Canada or Japan and persons receiving
such documents (including custodians, nominees and trustees) must not distribute or send them in, into or from such jurisdictions.
Notwithstanding the foregoing, Sonae and/or Sonaecom retains the right to permit the Offer to be accepted and any sale of securities pursuant to the Offer
to be completed if, in its sole discretion, it is satisfied that the transaction in question can be undertaken in compliance with applicable law and
regulation. The availability of the Offer to persons not resident in Portugal or the United States may be affected by the laws of the relevant jurisdiction.
Persons who are not resident in Portugal or the United States should inform themselves about and observe any applicable requirements.
The Offer will be made by Sonae and/or Sonaecom and (outside the United States) by Banco Santander de Negócios Portugal, S.A., on its or their behalf.
This presentation may contain forward-looking information and statements about Sonae, Sonaecom, PT or their combined businesses after completion of
the proposed Offer, based on management’s current expectations or beliefs. Forward-looking statements are statements that are not historical facts.
These forward-looking statements may relate to, among other things: management strategies; synergies and cost savings; future operations, products and
services; integration of the businesses; market position; planned asset disposal and capital expenditures; net debt levels and EBITDA; and earnings per share
growth, dividend policy and timing and benefits of the offer and the combined company. These forward-looking statements are subject to a number of
factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including, but not
limited to, changes in regulation, the telecommunications industry and economic conditions; the ability to integrate the businesses; obtaining any
applicable governmental approvals and complying with any conditions related thereto; costs relating to the offer and the integration; litigation; and the
effects of competition. Forward-looking statements may be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,”
“should,” “seeks,” “estimates,” “future” or similar expressions. Although these statements reflect our current expectations, which we believe are
reasonable, investors and PT shareholders are cautioned that forward-looking information and statements are subject to various risks and uncertainties,
many of which are difficult to predict and generally beyond our control, that could cause actual results and developments to differ materially from those
expressed in, or implied or projected by, the forward-looking information and statements. You are cautioned not to put undue reliance on any forward-
looking information or statements. We do not undertake any obligation to update any forward-looking information or statements.
1 Note: PT has recently announced a dividend of €0.475 per share to be voted on the AGM. Offer price may be adjusted accordingly
1
Description of key offer terms and conditions
Offer
price
€9.50 for each
ordinary and class A share of
Portugal Telecom
(“PT”)
outstanding
(plus €5,000 for each
PT
convertible bond
outstanding
)
Acquisition
of
100% of the
PT
share capital
Valuing
PT
at €10.7bn
(equity value)
€9.03
for
each
shar
e
of
PT Multimedia (“PTM”)
Acquisition
of the stake not
-
owned by PT (~42%)
Price assumes a
dividend distribution of €0.385/share
for PT
and
€0.275/share
for PTM
1
Offer
conditions
The offer
for
PT is conditional on
the following
Sonaecom acquiring
a
t least 50.01%
Amendments to PT
articles of association
(
removing
limitations
on
voting rights
of shareholdings
higher than 10% and
on
competing company
acquisitions
of stakes higher than 10%
)
Non
-
opposition by the Portuguese State
The offer on PTM is
subject
to the
success of
the
offer
for PT
Offer structure highlights—assuming 100% acceptance
Back-up facility
provided by
Santander
PT
Comunicações
(fixed line)
TMN
(mobile)
Vivo
(Brazil)
PTM
Others
Capital increase
up to €1.5bn;
Sonae SGPS will
subscribe up to
€1.0bn
Cash offer at
€9.5/share valuing
PT at €10.7bn
Acquisition debt facility
provided by Santander
63%
100%
100%
50%
58%
Depending on acceptance level of the Offer, restructuring post-offer will include:
Combining Sonaecom/PT debt
The sale of one of PT’s two fixed telecommunications infrastructure networks (cable or fixed)
The possible sale or consolidation of certain assets
The merger of TMN/Optimus (synergies created will justify premium paid)
Sonaecom BV
100%
2
100%
Offer structure highlights—assuming 100% acceptance
(cont’d)
Bank
guarantee
Issuer: Sonae SGPS or Sonaecom
Amount: €11.1bn
3
Acquisition
finance
facility
Borrower: Sonaecom BV
Amount: €11.1bn
Maturity: 7 years (50% to be repaid within the first two years)
Capital
increase
Capital increase at Sonaecom level of up to €1.5bn
1 Facility used to refinance debt at PT level
Back-up
facility1
Borrower: Portugal Telecom SGPS
Amount: Up to €4.0bn
Maturity: Up to 4 years
Sonaecom’s five pillars for strategy of the new Sonaecom/PT
Group
Strengthen PT’s competitiveness within a much more competitive Portuguese
telecoms market
Integration of Sonaecom Group’s businesses with PT
Merger of Optimus and TMN
Sale of one of the Fixed networks (copper or cable)
Launch of Triple Play
Increase investment in technology and innovation
Reorient PT’s international strategy into a more cohesive portfolio of “controlled”
mobile investments
Readjust portfolio based on control
Negotiate with Telefonica
Reallocate resources towards controlled assets (existing/new)
Implement a clear commercial, technological and international partnership
strategy
European mobile partnerships
Preservation of independence
Protection of brands
Technological partnerships
4
Sonaecom’s five pillars for strategy of the new Sonaecom/PT
Group (cont’d)
Establish strong and stable shareholder leadership
Committed majority shareholding with vision and necessary skills for
implementation and execution
Sonae Group culture and corporate values
Able to live with “Golden Share” or other mechanism to safeguard strategic
interests of the Portuguese State
Intention to keep Sonaecom and PT (or merged entity) quoted on Euronext Lisbon
Adopt “best practice” in Corporate Governance
Board composition
Quality and transparency of financial information
Best practices (reporting, internal controls, managing conflicts, …)
Human resources
5
We reiterate our stated position and strategy regarding our Public Tender
Offer for Portugal Telecom
June
July
April
May
February
March
August
September
Indicative timetable for the Offer
Note: indicative timetable for the Offer; does not take into account Sonaecom’s share capital increase process. Excludes the impact of a competing bid (which imposes material delays for
the process). Indicative timetable also excludes PTM Offer, which may vary depending on CMVM deciding that if it will be subsequent or simultaneous to PT Offer
¹ Indicative timeframe-assuming ruling from Portuguese Competition Authority on June 21, 2006
² Delivery of the banking guarantee
06/Feb/2006¹
27/Feb/2006
27/Feb/2006
06/Mar/2006
21/Apr/2006
21/Jun/2006
30/Jun/2006
09/Jul/2006
09/Jul/2006
24/Jul/2006
19/Aug/2006
23/Aug/2006
18/Sep/2006
21/Sep/2006
20/Feb/2006
PT's annual shareholders meeting
Decision of Competition Authority¹
Registration of Offer with CMVM²
Filing schedule to with the SEC
Offer period: maximum 10 weeks
Announcement of offer launch and
distributing prospectus
Request for shareholders meeting
(amendments to PT's articles of
association)
PT shareholders meeting
Formalization of the decisions
taken in PT's shareholders meeting
Offer expiration
(limit date for a competing offer)
Settlement of the Offer
Opinion of PT’s and PTM’s
Board of Directors on Offers
Request registration from CMVM
Delivery of Offer documents to PT/PTM
Notification to Competition Authority
Preliminary announcement
6
Historical share price performance of PT
17-Mar-05: Issue of
€750mm worth of 7 year
bonds and €500mm of 5
year bonds; a 20 year
tranche is withdrawn due
to difficult market
conditions
02-Mar-05: PT divests
newspaper and radio
group Lusomundo for
€300mm to Portuguese
sports entrepreneur Mr
Oliveira
26-Aug-04: Portugal Telecom and
Telefonica Moviles announce their
intention to enforce their
commitment in Latin American
markets, starting with a public tender
offer for the outstanding stakes in
Vivo’s subsidiaries
05-Feb-04: Sonaecom
suspends offering
broadband services as a
response to Portugal
Telecom’s alleged abuse of
dominant market position
31-Oct-03: Portugal Telecom
is one of the first European
operators to announce a fully
integrated telecommunication
package comprising fixed,
mobile and cable services
17-Sep-03: Share price rises
4.6% in one day after Portugal
Telecom publishes better-than-
expected half year results and
announces a substantial
increase in dividends
24-Jun-03: Dividend
target raised by 10% to
€0.22 giving Portugal
Telecom the highest
dividend yield among
European incumbents
07-Mar-03: Year
2002 results beat
market expectations
with strongly
improved profits
despite declining
revenues
17-Jan-03: Brasilcel, the
Brazilian joint venture of
Portugal Telecom and
Telefonica Moviles,
acquires TCO and
increases its market
share to above 50%
21-Jun-02: Portugal
Telecom announces a
60% increase in dividends
and high profit growth
rates leading to a sharp
increase of the share
price
May-02: Miguel
Horta e Costa
becomes new CEO
after the company
separated the
posts of CEO and
chairman
17-Mar-02: Low
profits due to
acquisition costs
and exchange rate
losses are in line
with market
expectations
05-Sep-01: Portugal Telecom withdraws
its offer to acquire the remaining 58% of
shares in its Brazilian subsidiary Telesp
Celular through a share swap after its own
share price drops below the minimum
level initially established in the public
offer
12-Dec-02: Portugal
Telecom acquires the
fixed-line telephone
network from the
Portuguese government
for €325mm
06-Feb-06:
Sonaecom makes
an unsolicited
public offer to
acquire all shares
of Portugal
Telecom
Source: Company information and Datastream as of March 17, 2006
1 Peers index is un-weighted and include the following companies Swisscom, Deutsche Telekom, France Telecom, Telecom Italia, OTE, Telefonica and Telenor
Peers un-weighted index1
Portugal Telecom
7
Share price performance – last five years (rebased to PT)
Source: Company information and Datastream as of March 17, 2006
1 Announcement occurred on February 6, 2006 (after closing of market)
2 Share price as of March 17, 2006
3 Last closing price prior to the takeover announcement
Share price analysis
8
Share price performance (rebased to 100)—since announcement
Summary of market data—as of March 17, 2006
PT defence announcement
(March 7, 2006)
PSI-20
PTMulti-
media
Portugal
Telecom
Sonaecom
Sonae
SGPS
Portugal
Telecom
PT
Multimedia
Sonae SGPS
Sonaecom
Closing share price one day
before announcement (€)
1
8.2
9.6
1.2
3.5
Reaction on offer
day
18.5%
2.9%
3.4%
3.4%
Current c
losing share price (€)
2
10.1
10.4
1.4
3.9
% of 52 weeks high
99
.8 %
98.3 %
99.3 %
89.5 %
Performance since 06/02/2006
3
23.0 %
8.3 %
14.4 %
11.6 %
Maximum
on day
(€)
10.1
10.5
1.4
4.0
Minimum
on day
(€)
10.1
10.4
1.3
3.9
Number of shares traded (
000)
3,650
127
7,921
476
% of 3 mont
hs average
46.6 %
43.8 %
52.4 %
52.6 %
Market cap (€mm)
11,735
3,221
2,700
891
Source: Datastream (trading prices for the 6 months prior to announcement date)
1 Adjusted average (excluding maximums and minimums)
Premium
of 20.9%
Premium
of 25.8%
Weighted average price
last 6 months
Offer price (including dividend)
Offer price (excluding dividend)
1 Including announced dividend of €0.385/share, announced prior to the announcement of the offer
2 As of February 6, 2006
9.6%
Premium to offer price
8.67
1
(€)
Adjusted average
YE 06
9.9
Buy
05
-
Oct
-
07
BCP
YE 06
8.2
Hold
05
-
Oct
-
11
Bernstein
YE 06
8.6
Buy
05
-
Oct
-
13
Santander
YE 06
7.6
Hold
05
-
Oct
-
28
Credit Suisse
/A
N
8.7
Hold
05
-
Nov
-
02
Morgan Stanley
N/A
9.8
Buy
05
-
Nov
-
22
Dresdner
YE 05
7.4
Hold
05
-
Nov
-
24
Societé Générale
YE 06
8.9
Buy
05
-
Dec
-
05
JPMorgan
N/A
8.2
Hold
05
-
Dec
-
05
UBS
YE 06
8.4
Hold
05
-
Dec
-
05
Deutsche Bank
N/A
8.2
Hold
05
-
Dec
-
12
WestLB
N/A
9.2
old
H
05
-
Dec
-
12
BNP Paribas
YE 06
8.2
Hold
05
-
Dec
-
15
BPI
YE 05
7.9
Hold
05
-
Dec
-
19
ABN Amro
N/A
8.8
Buy
05
-
Dec
-
27
Espírito Santo
YE 06
10.5
Buy
06
-
Jan
-
12
Citigroup
YE 06
9.5
Buy
06
-
Jan
-
20
ING
date
Target
(€)
Target price
Recommendation
Date
Broker report
33.9%
28.7%
7.38
announcement
Minimum price of 6 months prior to
11.4%
7.1%
8.87
announcement
Maximum price of 6 months prior to
20.3%
15.6%
8.22
announcement
Weighted average of 3 months prior to
25.8%
20.9%
7.86
announcement
Weighted average of 6 months prior to
20.8%
16.1%
8.18
²
Closing price on day prior to announcement
¹
premium
Adjusted implied
premium
Implied
share (€)
Price per
Source: Broker’s reports and JCF as of February 2006
1 Adjusted average (excluding maximums and minimums) of the trading multiples of the following
comparables: Telefónica, Deutsche Telekom, France Telecom, Telecom Itália, Swisscom,
Telenor, Belgacom and OTE (February 2006). PT multiples were calculated based on brokers
consensus
2 Implied multiples based on offer price (consolidated values for PT and including the proposed
gross dividend of €0.385/share, announced prior to the announcement of the offer)
Premium analysis to brokers price targets
Portugal
Telecom
Premium analysis to trading multiples
Premium analysis to trading prices (€/share)
9
Offer premium analysis
2005E
2006E
2007E
FV/EBITDA
Average of comparables¹
5.7x
5.2x
4.8x
Portugal Telecom
²
6.5x
6.4x
6.1x
Premium
14.0%
23.1%
26.3%
P/E
Average of comparables¹
13.4x
12.6x
11.0x
Portugal Telecom²
19.1x
15.9x
13.7
x
Premium
42.5%
26.2%
17.1%
Brokers’ reaction to the Offer
Brokers’ comments
“There is a possibility of a counter bid, although a Portuguese takeover
would be preferred by the authorities... We believe that Sonae is
financially, not politically, motivated.”
February 7, 2006
UBS
“We are happy that like us, [Sonae] can see value in the current PT share
price. We believe that Sonae’s bid is likely to be supportive to the share
price in the near-term”
February 7, 2006
Citigroup
“Sonae’s unexpected [bid] ... appears politically acceptable. We expect
that it is already financed. Existing PT shareholders may force the price up
a little, but we see a good chance of Sonae achieving majority control ...
The bid appears to have been carefully considered and assembled, and the
timing appears clever ... By remaining independent of other telcos, the co-
operation between Telefonica and Sonae-Owned PT could continue”
February 7, 2006
DKW
“Goldman Sachs refers that the offer price seems high, since PT was trading
at lower prices before the tender offer. Goldman indicates three potential
outcomes for the transaction (1) Telefonica launches a competing bid at
€10 per share, with the main motivation of consolidating 100% of Vivo and
MediTelecom (2) Sonae acquires PT, with Sonae being forced to divest some
assets, keeping the fixed line and the mobile businesses and selling Novis,
Optimus and PTM (3) LBO of PT”
February 8, 2006
Goldman Sachs – (translation from Portuguese Jornal de Negocios news
article)
“In case Sonaecom wins ... there’s the possibility that TMN and Optimus
may be merged ... we see this [as] acceptable given that there would be
other ways to foster even further competition in the market: Setting price-
caps, cutting interconnection rates and introducing MVNOs.”
February 13, 2006
BPI
“From a valuation standpoint this offer, slightly below our valuation, makes
sense for Sonae and points to a long-term interest in the telecoms sector ...
We [think] that this move makes sense for Sonae.”
February 7, 2006
Bear Stearns
Market analysts have reacted positively to the announcement of the transaction, highlighting
the offer price and the strong industrial rationale/proposition
10
Brokers’ reaction to PT’s defence statement
11
Brokers’ reaction
“Key takeout: PT is now a faith investment in whether investors support PT
management or take Soneacom's cash. PT management are very good at
hitting “revised guidance", but for example, the company only just
squeezed into its TMN guidance range of -5% to -10% EBITDA in 2005
(delivered -9.8%) when this was only set on June 1!”
March 7, 2006
Deutsche Bank
“PT's reaction was expected, but management team commits towards a
strong shareholder remuneration policy and an increase in financial
leverage, possibly fending-off any attempt for a hostile offer; we wonder
from where the claimed savings of opex and capex gains worth some
Eur250mn/year come from, as they had not seen any previous reference to
it; as for PT's new 2006-08 targets, we are generally more conservative,
assuming a cumulative EBITDA-Capex of some Eur4bn and EBITDA roughly
flat in the same period; the difference to PT's estimates relates to the
company's expected opex and capex/wc savings of Eur250mn/year”
March 7, 2006
BPI
Market analysts have focussed their reaction on PT’s defence proposition, referring to the
difficulties of delivering PT’s proposed growth and value targets
“ BNP Paribas considers that the offer launched by Sonaecom could be
approved by the government in order to keep the Portuguese
telecommunications company owned by a Portuguese shareholder. The
results presented by PT led to a cut in the price target from the previous
€10.6 to €10.3, maintained the neutral recommendation. The main reason
for the cut in the price target was the disclosed value of the unfunded
pension liabilities higher that what was expected”
March 7, 2006
BNP Paribas – (translation from Portuguese Jornal de Negocios news
article)
“ Lehman Brothers cut PT’s price target to €7.5 from €7.9. The research
house assumes that there is a regulatory risk in the merger between
Optimus and TMN that could be the strongest barrier to the takeover
launched by Sonaecom.
Neverthless, the cut in the price target was due to the weak results
presented by PT and the not so positive expected trend for PT’s future.”
March 7, 2006
Lehman Brothers – (translation from Portuguese Jornal de Negocios news
article)