BellSouth Corp. said last week it could issue a tracking stock for its highly successful Latin American operations by late April or early May, a move that will allow investors to more accurately value the company’s international assets.
BellSouth’s Latin American business consists of properties in 10 countries and has estimated earnings before interest, taxes, depreciation and amortization of $800 million, expected to grow at a compound rate of 50 percent during the next three years, said analysts with Morgan Stanley Dean Witter.
Issuing a tracking stock will give BellSouth a “lower cost of acquiring assets in what will likely be a year of major consolidations in the South American telecommunications industry,” said Eric Strumingher, analyst with PaineWebber.
“Telefonica and AT&T already have publicly traded equities that they will likely use toward this end in South America. We believe that BellSouth will be at a competitive disadvantage without a similar currency,” Strumingher said.
PaineWebber estimated that BellSouth’s wireless assets represent 35 percent to 40 percent of the company’s enterprise value. International wireless alone represents 20 percent to 25 percent.
“Our wireless business, both domestic and international is huge … our international operations are going gangbusters,” said Jeff Battcher, a spokesman for BellSouth.
The company also indicated last week it would support a bid by KPN, the Dutch carrier BellSouth recently formed an alliance with, for the U.K. telecoms company Orange plc. Orange is to be spun off of Vodafone AirTouch plc as part of an effort to win regulatory approval for its takeover of Mannesmann AG.
Battcher confirmed as much and said BellSouth is putting more focus on its European operations.
BellSouth has the option to convert its ownership in Germany-based E-Plus into a 19-percent interest in KPN or an equivalent value in KPN Mobile, the wireless subsidiary of KPN that will be spun out to shareholders the first half of the year, said Strumingher.
PaineWebber estimated this could translate into an approximate 25-percent stake in KPN Mobile. KPN Mobile will have wireless assets in Germany, Holland, Belgium (shared with Orange) and some markets in Eastern Europe.
Domestically, BellSouth still does not have a national wireless network, and the company is making no immediate plans to build one out.
“It comes down to a debate of are your customers being served?,” said Battcher. “We’ve got very good roaming agreements in place, and we are negotiating them on a monthly basis and getting lower and lower rates. So few of our customers ever roam. It is something we will continue to investigate.”
The company also recently announced it plans to cut its domestic workforce by about 2,100 as the company tries to streamline its operations and shift from a multiple-company structure to a single organization. The company did not reveal which types of jobs would be cut.
