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UNCLAS SECTION 01 OF 02 CARACAS 000321 
 
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E.O. 12958: N/A 
TAGS: ECON ECPS ENRG PGOV VE
SUBJECT: VERIZON AGREES TO SELL CANTV SHARES TO THE BRV 
 
REF: A. CARACAS 59 
     ¶B. CARACAS 84 
     ¶C. CARACAS 302 
 
¶1.  (SBU) Four days after AES agreed to sell the BRV its 
interest in EDC (Reftel A), the BRV and Verizon announced 
February 12 that they had struck a deal for the sale of 
Verizon's 28.51 percent controlling interest in CANTV. 
Verizon will be paid USD 572 million for its shares and has 
indicated that it is pleased with the deal.  The price is 
less than Mexican telecom investor Carlos Slim's April 2006 
tender offer, but higher than the current market value for 
these CANTV shares.  At the signing ceremony, Vice President 
Jorge Rodriguez underscored that Venezuela had recovered its 
"sovereignty," while Telecommunications Minister Jesse Chacon 
announced the birth of a new CANTV that would expand its 
service to rural southern Venezuela.  Despite the 
revolutionary rhetoric, the BRV again seemed eager to prove 
to the international community, especially the United States 
(both to investors and the USG), that it respects 
international standards of prompt, adequate, and effective 
compensation.  End Summary. 
 
-------- 
The Deal 
-------- 
 
¶2.  (SBU) The BRV and Verizon signed a Memorandum of 
Understanding during a ceremony the evening of February 12, 
only four days after AES agreed to sell the BRV its 82 
percent interest in EDC for USD 739 million.  Verizon Vice 
President for Development, John Diercksen, signed for Verizon 
and Vice President Jorge Rodriguez and Minister of 
Telecommunications Jesse Chacon signed for the BRV.  The BRV 
will purchase Verizon's 28.51 percent controlling stake in 
CANTV for USD 572 million, USD 17.85 per ADR.  This price is 
below that of Mexican telecom investor Carlos Slim's USD 677 
million offer to Verizon for its stake in CANTV in April 
2006, but higher than CANTV's current per share market value. 
 At close of business on February 12, CANTV's ADR price was 
USD 16.08.  We have also heard rumors that CANTV will soon 
announce a USD 3 dividend per ADR to make up the price 
difference with Slim's 2006 tender offer.  In a statement 
lasting less than a minute, a somber Diercksen said Verizon 
was pleased with the deal and appreciated the BRV's 
willingness to negotiate quickly.  During early trading on 
February 13, CANTV's ADR price was climbing towards the 
tender price.  At 11 am New York time, the price had reached 
USD 17.30, up 7.59 percent from the price at close of 
business on February 12. 
 
¶3.  (SBU)  The BRV will own 35.1 percent of CANTV after 
acquiring Verizon's shares.  (Note: The BRV currently owns 
6.6 percent of CANTV through BANDES.  End Note.)  Spanish 
telecom giant Telefonica owns 6.9 percent of CANTV.  Over 
half of CANTV's shares, 51.4 percent, are traded on the 
Caracas Stock Exchange and as ADRs on the New York Stock 
Exchange.  In order to obtain the funds to acquire a majority 
stake in the company, the BRV will launch two tender offers, 
one in the local market and one in the United States.  Legal 
counsel for Brandes Investment, a U.S. investment company 
that owns 15 percent of CANTV through the ADR market, 
previously told EconOff that the company had filed an ICSID 
arbitration claim against the BRV two weeks ago.  While this 
appears to be a negotiation strategy, it shows that more 
posturing and negotiations can be expected in the BRV's 
continued acquisition of CANTV shares. 
 
--------------------------------------------- ---- 
Telecommunications Minister Chacon: The New CANTV 
--------------------------------------------- ---- 
 
¶4.  (SBU) At the signing ceremony, Jesse Chacon proclaimed 
"today begins the birth of a new CANTV.  It will be truly 
national within the model of social management moving forward 
to socialism in the 21st century."  He said CANTV would 
universalize internet access, expand its service, and invest 
in infrastructure development in rural southern Venezuela, 
investment that the private sector had considered 
unprofitable.  He continued in the vein that CANTV would 
 
CARACAS 00000321  002 OF 002 
 
 
expand its coverage to all Venezuelans, in every corner of 
the country, and announced that a new rate structure would 
take effect, based on "justice."  Commenting on the 
nationalization process, Chacon said that signing ceremony 
knocked down the series of domestic and international lies 
that intended to stigmatize the way that the Venezuelan state 
proceeded to nationalize these strategic companies for 
national sovereignty. 
 
--------------------------------------------- ------------ 
Vice President Rodriguez: Recovering National Sovereignty 
--------------------------------------------- ------------ 
 
¶5.  (SBU)  The drum beat of recovering national sovereignty 
was the focus of Vice President Rodriguez' comments.  "When 
we have CANTV in the hands of the state, Venezuelans will 
feel the recovery of sovereignty, they will feel it in better 
service, more solidarity, and a greater presence of the state 
in its telecommunications policy in every corner of the 
country," said Rodriguez.  He also offered his take on 
historical privatizations in Latin America, stating that 
between 1985 and 2000, strategic sectors were nationalized 
for USD 80 billion, promising social development and 
delivering misery and poverty.  CANTV, according to 
Rodriguez, was a monopoly for nine years, with the most 
expensive rates in the world, leaving 40 percent of urban 
residents and 75 percent of the rural population without 
telecommunications access.  He also accused the CANTV Board 
of Directors of complicity in the 2002 coup against Chavez 
and other attempts to destabilize the government.  (Note: 
CANTV President Gustavo Roosen tendered his resignation on 
February 13.)  Despite the Bolivarian rhetoric, Rodriguez 
also emphasized the transparency of the transaction, as he 
did at the EDC ceremony.  "We are recovering this company at 
a price that we discussed transparently with Verizon, and 
appreciate the opportunity to resolve this point rapidly, 
transparently, and clearly," said the Vice President. 
 
------------------------------------------ 
The Impact of the Deals on AES and Verizon 
------------------------------------------ 
 
¶6.  (SBU) AES' sale of its 82 percent stake in EDC has a 
greater impact on its overall business operations and value 
than Verizon's sale of 28.5 percent of CANTV.  EDC represents 
a USD 739 million investment for a company whose market 
capitalization is roughly USD 15 billion.  In contrast, 
Verizon's investment in CANTV is a minor asset for a company 
whose capitalization is over USD 110 billion.  AES 
involvement in the Venezuelan market and control over EDC was 
deeper and more comprehensive than Verizon's relationship 
with CANTV.  AES controlled over 80 percent of EDC and was 
actively engaged in management of the company.  AES insisted 
that minority shareholders be treated fairly to preserve its 
reputation if it wanted to return to Venezuela.  Despite 
having a controlling interest, Verizon never sought to manage 
CANTV's operations.  Moreover, Verizon was already trying to 
sell CANTV and its motivation was to maximize value, whether 
the purchaser were Carlos Slim or the BRV. 
 
------- 
Comment 
------- 
 
¶7.  (SBU) While the EDC sale was simply a business 
transaction for the BRV, CANTV has always meant more.  Chavez 
firmly believes that telecommunications is a strategic sector 
and, along with key BRV ministers, believes in principle that 
CANTV should never have been privatized (Reftel B). 
Statements made by Rodriguez and Chacon at the CANTV signing 
were far more acerbic and infused with revolutionary rhetoric 
than the remarks on February 8 at the EDC ceremony.  Despite 
the revolutionary rhetoric in Rodriguez' comments and 
denunciations of capitalism, the Vice President repeatedly 
highlighted the transparency of the negotiations with 
Verizon, showing that the BRV remains concerned about 
international perceptions of its nationalization campaign. 
End Comment. 
 
BROWNFIELD