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Portugal Telecom – Takeover Defense

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Portugal Telecom – Takeover Defense Portugal Telecom – Takeover defense Faculdade de Economia Universidade Nova de Lisboa Portugal Telecom Takeover defense ALLEN VASCONCELOS Lisbon, September 2008 MBA – Masters Thesis - 1 - Portugal Telecom – Takeover defense Under the guidance of Prof. José Neves Adelino Faculdade de Economia Universidade Nova de Lisboa - 2 - Portugal Telecom – Takeover defense Takeover 1917, “an act of taking over” noun derivative of verbal phrase take over (1884), from take (v.) + over. Attested from 1958 in the corporate sense. Online Etymology Dictionary, © 2001 Douglas Harper “A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.” Investopedia®, a Forbes Digital Company - 3 - Portugal Telecom – Takeover defense Portugal Telecom – Takeover defense Table of contents ACKNOWLEDGEMENTS - 7 - INTRODUCTION - 8 - CASE STUDY – PART 1 - 10 - The Beginning - 10 - Sonaecom’s tender offer ................................................................................. - 10 - Portugal Telecom’s first response .................................................................. - 11 - Sonaecom’s tender offer registration ............................................................ - 12 - Portuguese Telecommunications Background - 13 - The history ....................................................................................................... - 13 - Portugal Telecom ............................................................................................. - 14 - Sonaecom .......................................................................................................... - 16 - The Story - 17 - PT’s first roadshow ......................................................................................... - 17 - PT’s general shareholders’ meeting .............................................................. - 18 - Rival takeover bid announcement and the PT/PTM spin-off ..................... - 19 - The communication war ................................................................................. - 20 - PT’s second roadshow ..................................................................................... - 22 - The Regulatory Environment - 23 - The Bid Upgrade - 24 - Exhibits - 25 - Exhibit 1 – Sonae’s tender offer terms .......................................................... - 25 - Exhibit 2 – Portuguese telecommunications operational numbers............. - 27 - Exhibit 3 – Portugal Telecom’s financials ..................................................... - 28 - Exhibit 4 – Sonaecom’s financials .................................................................. - 34 - - 4 - Portugal Telecom – Takeover defense Exhibit 5 – Takeover official process ............................................................. - 35 - Exhibit 6 – Premiums, multiples and valuations .......................................... - 36 - Exhibit 7 – Portugal Telecom’s corporate governance ................................ - 40 - Exhibit 8 – Portuguese Securities Code takeover restrictions .................... - 42 - Exhibit 9 – Portuguese Competition Authority conditions and obligations- 46 - Exhibit 10 – Stock market .............................................................................. - 48 - CASE STUDY – PART 2 - 49 - Sonaecom Upgrading Bid - 49 - Portugal Telecom’s Response and Sonaecom Counter-offensive - 50 - Final Arguments - 51 - The Shareholders’ Response - 52 - The Last Week - 53 - Exhibits - 54 - Exhibit 1 – New tender offer terms ................................................................ - 54 - Exhibit 2 – PT’s shareholders ........................................................................ - 56 - Exhibit 3 – PT’s shareholders’ comments pre-General Meeting ................ - 57 - Exhibit 4 – Stock prices ................................................................................... - 59 - CASE STUDY – PART 3 - 60 - Exhibits - 61 - Exhibit 1 – PT’s Extraordinary General Meeting (EGM) results .............. - 61 - TEACHING NOTES - 63 - Background - 63 - Case Structure - 65 - CASE LEARNING Objectives - 67 - Part 1 ................................................................................................................ - 67 - Part 2 ................................................................................................................ - 67 - Part 3 ................................................................................................................ - 67 - Assignment questions - 68 - Part 1 ................................................................................................................ - 68 - - 5 - Portugal Telecom – Takeover defense Part 2 ................................................................................................................ - 68 - Part 3 ................................................................................................................ - 68 - Suggested answers for Assignment questions - 69 - Part 1 ................................................................................................................ - 69 - Part 2 ................................................................................................................ - 84 - Part 3 ................................................................................................................ - 88 - REFERENCES - 90 - - 6 - Portugal Telecom – Takeover defense ACKNOWLEDGEMENTS I would like to express my gratitude to all those who gave me the possibility to complete this Thesis. I am deeply indebted to Prof. José Adelino Neves, from Faculdade de Economia, Universidade Nova de Lisboa, whose support, stimulating suggestions and encouragement helped me in all the time of research for and writing of this Thesis. To Charlotte Hamilton that looked closely at the final version of the thesis for English style and grammar, offering suggestions for improvement. To all the senior management of Portugal Telecom that supported me in my research work through several interviews and informal meetings. I want to thank them for all their help, support, interest and valuable information provided: - Henrique Granadeiro (PT’s CEO); - Luís Pacheco de Melo (PT’s CFO); - Nuno Machado (head of PT’s corporate finance unit); - Rita Sampaio Nunes (head of PT’s competition unit); - Nuno Prego (head of PT’s Investor Relations); - Francisco Lucena and Teresa Salema (PT’s Media Relations); - Helena Féria (my business director). To Filomena Silva, head of one of PT’s labor union (STPT – “Sindicato do Trabalhadores do Grupo Portugal Telecom”). I would like also to send a special thanks to the Media relations team that made me available all takeover's data (4GB of information) that I could bring to this Thesis as well as all of my PT's colleagues. Without them it would not have been possible to get all the different points of view that I tried to bring to this Masters Thesis. Especially, I would like to give my special thanks to my wife Alexandra, my parents, sister and grandfathers whose patient love enabled me to complete this work. - 7 - Portugal Telecom – Takeover defense INTRODUCTION This Masters Thesis aims to be used in class for teaching purposes. The primary objective of the case is to understand the way critical anti-takeover measures can be used in a hostile takeover environment. The case portrays not only all defensive tools used by PT against Sonaecom (conditioned by the Portuguese Securities Code) but also all major interactions with relevant stakeholders. Communication is positioned as a central tool to stakeholders’ interaction. As a consequence of that, students are supposed to comprehend how PT used this instrument to implement its defensive strategy. This Masters Thesis was written essentially from PT’s perspective but it also includes all available Sonacom’s public statements and data. It joins several different points of view (from PT’s CEO and top management to PT’s employees and labor unions). Therefore, it is not supposed to mach exactly to one’s perspective of Sonecom’s takeover attempt but instead to be an aggregate view of the case. The mains idea is to promote debate in order to create an interactive class environment among session’s attendants. Main areas developed in this Thesis are Mergers and Acquisitions, Corporate Communication and Corporate Governance. The case's recommended questions are in line with these areas. Suggested answers for these questions are balanced with some academic documentation that can be complemented with some in-class notes according to the session's objectives. Thesis’ structure is composed by: 1. Case Study – divided into three parts according to Sonaecom’s takeover’s timeline: PART 1 : the first part of the case starts on 6 February 2006 with Sonaecom’s takeover bid announcement and ends on 15 February 2007, after Sonaecom upgraded its initial offer from €9.50 to €10.50 per PT common share; PART 2: the second part of the case starts on 15 February with Sonaecom’s upgrading bid and ends on 2 March 2007, some hours before PT extraordinary shareholders’ meeting; PART 3: the third and last part of the case happens on 2 March 2007 after PT extraordinary shareholders’ meeting. 2. Teaching Notes – divided into a case’s background, assignment questions and suggested answers for assignment questions: BACKGROUND : an overview of Sonaecom’s takeover; it takes stock of PT and Sonaecom’s situation at Sonaecom’s takeover attempt; ASSIGNMENT
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