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SOME BRAZIL BID WINNERS MAY FEEL BUYER’S REMORSE

The high bids placed for Brazil’s eight A-band cellular companies late last month may cause some consortia members to rethink their positions.

Reports already indicate Japan’s NTT DoCoMo and Japanese trading group Itochu Corp. are reviewing their participation in a consortium led by Spain’s Telefonica, which successfully bid for Tele Sudeste Celular Participacoes, a cellular company operating in the states of Rio de Janeiro and Espirito Santo. The consortium bid $1.17 billion for the company, 136 percent above the asking price.

“There was a bidding frenzy,” indicated Glenn James, partner and regional director for Latin America with Deloitte Consulting in Atlanta. “What I think happened was that the partners had an agreement as to what they were going to pay. [Once] the auction started, they ended up having to pay more. NTT and Itochu were not prepared for what was going to happen. Now they have to determine whether they want to pony up their portion.”

The Brazilian government received premiums of more than 200 percent above the minimum bid requirements on some of the cellular properties it auctioned off late last month.

The sealed-bid auction that split Telebras among several international and local players earned the government nearly $19 billion. The government’s controlling stakes in Telebras’ eight cellular properties, three local landline properties and its long-distance property were sold as part of the company’s privatization effort.

James believes the high bids could cause other consortia to shift around ownership and look for new partners. Some construction companies even purchased properties, he said. Published reports indicate several winning consortia are negotiating the sale of stakes to new partners.

According to one report, the price Telefonica bid for the cellular company was more than double the amount both Japanese companies initially were willing to put up. Telefonica had the authority to bid whatever amount it felt was necessary to win the auction, but Itochu and NTT DoCoMo had the option to reconsider their participation in the consortium, commented an Itochu executive. At the time of the auction, NTT DoCoMo had an 8.5-percent stake in the consortium, while Itochu owned 5.5 percent.

James said both Japanese firms initially wanted to grab a stake in another consortium that won Sao Paulo State-which has the largest Japanese population outside of Japan. Portugal Telecom was the successful bidder, and offered too high of a premium for control of the firm, say published reports.

“I don’t think NTT will back out entirely,” said James. “My guess is they still will be a player in Brazil. There are a lot of pressures. Japan’s economy is bad and things at home have become a lot more competitive.”

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