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Carnival time for Telefónica
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January 13, 2000: 6:35 a.m. ET
Spanish giant boosts presence in South America; stock surges
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LONDON (CNNfn) - Spain's Telefónica plans to issue about $20 billion in new stock in order to take full control of several key subsidiaries in South America.
The news was well received in Madrid, where Telefónica shares were briefly suspended after rising by 15 percent, their daily trading limit. By late morning the stock was 13 percent higher at 26.10 euros.
Spain's dominant telecom operator and Europe's sixth-largest by market value, Telefónica plans to swap 800 million newly created shares for minority shareholders' stock in the four South American companies. Issuing the new shares would increase the company's existing capital by almost a quarter.
Telefónica has invested heavily in South America in recent years, building significant holdings in phone companies in most of the region's biggest markets. The attractions of this investment program have been a major factor in the stock's strong performance.
"There are definite long-term strategic advantages in controlling your subsidiaries," said European telecom analyst Robert Grindle at Dresdner Kleinwort Benson. The buyout should enhance Telefonica's attractions to other telecom companies looking to sign partnerships, he said. "Anyone who's serious about [getting into] South America needs to talk to Telefonica - it will have the supreme position there when this deal goes through."
After buying out the minority shareholders in Telesp and Tele Sudeste Celular in Brazil, Telefónica de Argentina and Telefónica del Peru, the Spanish firm will divide its global business along several different lines. Telefónica Moviles is the unit it will create to group its cellular activities in Spain, Latin America and North Africa. Moviles will be the world's sixth-largest cellular company, with 14 million subscribers.
The other new division will be Telefónica DataCorp, combining the firm's data communications activities.
Telefónica recently merged all its Internet access activities into one company, Terra Networks. That unit's shares have more than quintupled since the parent sold a minority stake to the public in November. An initial offering of shares in the data business is "definitely on the cards," according to Dresdner's Grindle.
"At first sight, it seems to make strategic sense -- grouping activities by business lines and not by geographic areas," said Maria Rotondo, an analyst at Banco Santander Central Hispano.
The premiums Telefónica will pay for the four Latin American companies - 40 percent above the shares' levels over the past five days - were deemed respectable, Rotondo said. The Spanish company said it will list its own shares in Sao Paulo, Rio de Janeiro, Buenos Aires and Lima once the deal has been concluded.
"The premium paid seems reasonable given the poor relative performance of Latin American telecoms companies compared with the European ones last year," Rotondo added.
Telefónica has filed for permission to increase its 3.26 billion shares currently outstanding by another 792.6 million. At the current price the company would then be valued at 105 billion euros ($109 billion.) 
-- from staff and wire reports
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Telefónica
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