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Disclaimer
This valuation report is for informational purposes only and is not an offer to purchase or the solicitation of an offer to sell any shares of Brasil Telecom S.A. (BRT"). The tender offer for the outstanding preferred shares of BRT referred to in this valuation report has not commenced. Any offer to purchase or solicitation of an offer to sell any preferred shares of BRT from any person resident in the United States will be made only pursuant to an offer to purchase and related materials that Telemar Norte Leste S.A. ("Telemar") intends to file with the U.S. Securities and Exchange Commission (the "Commission") upon commencement of the tender offer. Holders of preferred shares of BRT should read carefully the offer to purchase and the other documents relating to the tender offer when they become available and prior to making any decisions with respect to the tender offer because these documents will contain important information about the tender offer, including the terms and conditions of the tender offer. Following the filing with the Commission of the offer to purchase and the other documents relating to the tender offer, holders of preferred shares of BRT will be able to obtain the filed documents free of charge at the Commission's website at www.sec.gov or from Telemar.
Index
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1. Executive summary 2. Information about the evaluator 3. Market and company description 4. Valuation of Brasil Telecom 4.1. Financial and operational highlights 4.2. Weighted average price of the shares on the BOVESPA 4.3. Book value of the shareholders equity 4.4. Economic value based on market multiples of comparable companies methodology Appendix A. Analysis of the historical spreads between ON and PN shares Appendix B. Valuation criterion Appendix C. Terms and definitions used in the valuation report Appendix D. Additional information and disclaimers
3 8 15 18 19 23 27 29 35 37 39 41
1. Executive summary
Weighted average price of common and preferred shares listed on the BOVESPA
R$ per share, except when otherwise indicated
BRTO3 12-month period prior to the release of the Material Fact(2) 04/24/2007 - 04/24/2008 Number of shares (mn)
(3)
BRTO4
R$ 33.51 249.6 R$ 8,363.7 R$ 33.51 R$ 48.09 249.6 R$ 12,002.5 R$ 48.09 R$ 39.85 249.6 R$ 9,947.3 R$ 39.85
R$ 15.46 297.7 R$ 4,600.7 R$ 15.46 R$ 19.39 297.7 R$ 5,771.9 R$ 19.39 R$ 17.67 297.7 R$ 5,258.5 R$ 17.67
Market capitalization (R$ mn) Value per share weighted by the number of shares of each class Period between the release of the Material Fact and the date of the Valuation Report 04/25/2008 - 05/30/2008 Number of shares (mn)
(3)
Market capitalization (R$ mn) Value per share weighted by the number of shares of each class 90-day period between 01/24/08 and 04/23/08 01/24/2008 - 04/23/2008 Number of shares (mn)
(3)
Market capitalization (R$ mn) Value per share weighted by the number of shares of each class
Credit Suisse applied the criterion of volume weighted average price of the shares issued by BRT between January 24, 2008 and April 23, 2008 to calculate the value of shares issued by BRT
Source: (1) (2) (3) Economtica, as of May 30, 2008. For further information on the applied calculation methodology, see Appendix B of this Report. Material Fact dated April 25, 2008 regarding the acquisition of indirect control of Brasil Telecom and Brasil Telecom Participaes. Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
03/31/08 Total assets (-) Total liabilities (-) Minority interests = Shareholders' equity Total number of shares (million) R$/share PN and/or ON
Source: Financial statements of BRT. Base date: March 31, 2008. (1) Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
(1)
BRT EBITDA LTM(2) x EV/EBITDA Multiple = BRT enterprise value (-) BRT net debt (03/31/2008) = BRT total equity value . PN shares
(1)
R$ 3,774.1 5.84x 22,048.6 2,887.8 19,160.9 5,661.9 13,400.1 98.8 298 250 547
- 4.65% + 4.88%
Number of PN shares (million)(3) Number of ON shares (million)(3) Total number of shares (million)
(3)
Source: Financial statements of BRT and Credit Suisse. Base date: March 31, 2008. (1) For further information on the justification of the value breakdown between different classes of shares of BRT, see page 34 of this Report. (2) LTM = Last twelve months ended on March 31, 2008. (3) Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
PN
R$ 15.46
R$ 48.09
R$ 19.39
R$ 39.85
R$ 17.67
Economic value(2)
ON controlling
R$ 51.66 R$ 56.83
R$ 18.14
R$ 19.95
ON minority
R$ 41.33
R$ 45.46
R$ 10.33
R$ 10.33
For further information, see pages 23-26 of this Valuation Report. For further information, see pages 29-34 of this Valuation Report. For further information, see pages 27-28 of this Valuation Report.
Jos Olympio Pereira is responsible for the investment banking division of Credit Suisse in Brazil Before joining CS, Jos Olympio was co-responsible for the investment banking division in Latin America and responsible for this division in Brazil at Citigroup Global Markets between February 2001 and May 2004. He was also responsible for Donaldson, Lufkin & Jenrette in Brazil between February 1998 and December 2000. He worked for 13 years at Banco de Investimentos Garantia, where he occupied several positions, including his latest position as responsible for the corporate finance area. During his career, Jos Olympio was responsible for a large number of relevant mergers and acquisitions, as well as for various equity and debt offerings in the Brazilian and international markets Jos Olympio has a degree in Civil Engineering from Pontifcia Universidade Catlica in Rio de Janeiro and a masters degree in Business from Harvard Business School
Marco Gonalves is responsible for mergers and acquisitions of the investment banking division of Credit Suisse in Brazil Before joining CS, Marco Gonalves worked at ABN Amro Bank, Deustche Bank and BNP Paribas both in Brazil and in New York. Marco Gonalves has over 13 years of experience in investment banking, and has provided advisory services to various clients in mergers and acquisitions in a number of sectors Marco Gonalves has a Mechanical Engineering degree from the Federal University of Santa Catarina and a specialization course in Finance from the New York University
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Bruno Amaral is an associate of the investment banking division of Credit Suisse in Brazil Bruno Amaral has been a part of the Credit Suisse team since February 2005. Before joining Credit Suisse, Bruno worked in the investment banking division of Citigroup Global Markets (ex-Salomon Smith Barney) in So Paulo and New York, and in the mergers and acquisitions division of BNP Paribas in So Paulo and Paris. He has over 8 years of experience in investment banks and has already worked on various mergers and acquisitions, as well as equity and debt offerings in various sectors in Brazil, Latin America and Europe Bruno Amaral has a degree in Economics from the Universidade de So Paulo
Daniel Anger is part of the execution team of the investment banking division of Credit Suisse in Brazil Daniel Anger joined Credit Suisse in June 2007. Before joining Credit Suisse, Daniel worked as an analyst in the investment banking division of N.M. Rothschild in Brazil, and at Bain & Company. Throughout his career, Daniel Anger has worked on several operations in mergers and acquisitions and capital markets in different sectors Daniel Anger has a degree in Industrial Engineering from the Universidade de So Paulo
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Evaluators representations
As established in CVM Instruction No. 361/02, CS represents that:
1. The table below summarizes the quantity of securities issued by BRP and BRT that CS, as well as other entities
linked to it, hold or own under their administration, based on data as of May 30, 2008:
Entity Type of Security Ticker
Number of Shares
% Total Capital
CS and/or CS' conglomerate companies CS and/or CS' conglomerate companies CS and/or CS' conglomerate companies
2. It has no conflict of interest that may in any way restrict its capacity to arrive at the conclusions independently
presented in this Valuation Report. 3. It has no direct or indirect interest in BRT, Telemar or in the Voluntary TO, and there is no other relevant circumstance that may be considered a conflict of interest; the controlling shareholder or managers of BRT and Telemar have not directed, limited, hindered or performed any act that adversely affected or may have adversely affected the access to, use or knowledge of information, assets, documents or work methodologies relevant for the quality of the respective conclusions; the controlling shareholders of the companies and their managers have not determined the methodologies used in this Valuation Report; and there is no existing or potential conflict or pooling of interests with the controlling shareholder of Telemar, or with their minority shareholder(s) or, with respect to BRT, its respective partners, or in connection with the Voluntary TO
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6.
7.
8.
9. 10. 11.
12.
Participaes S.A. (Brasil Telecom Participaes or BRP) will be R$2,000,000.00, to be paid by Telemar On May 02, 2008 CS received R$5,341,491.18 as the engagement commission to act as the Agent (Comissrio) with respect to the acquisition of the indirect control of Brasil Telecom S.A. and Brasil Telecom Participaes S.A. On December 28, 2007 it received R$19,052.42 as reimbursement of expenses incurred in the provision of advisory services to Telemar in connection with the sale of shares issued by Tele Norte Celular owned by Telpart Participaes S.A. On December 21, 2007 it received R$963,177.69 for the 1st installment of the engagement commission to act as exclusive financial advisor in connection with the merger with or direct or indirect acquisition of shares issued by Brasil Telecom S.A. and Brasil Telecom Participaes S.A. On January 8, 2008 it received R$1,888,217.14 for the 2nd installment of the engagement commission to act as exclusive financial advisor in connection with the merger with or direct or indirect acquisition of shares issued by Brasil Telecom S.A. and Brasil Telecom Participaes S.A. On May 15, 2008 it received R$1,244,428.57 as commission and remuneration with respect to the valuation reports of the voluntary public tender offers of Tele Norte Celular Participaes S.A. and Amaznia Celular S.A. It has been retained by Telemar to prepare a valuation report with respect to BRP in the context of the voluntary tender offer for acquisition of preferred shares of BRP, as explained previously in item 4 above It received R$9,456,367.00 from Telemar, in the 12 months prior to the voluntary public tender offer registration request, as remuneration for any consultancy, valuation, auditing and related services provided, as previously explained in items 5, 6, 7, 8 and 9 above It has not received any amounts from BRT as remuneration for any consultancy, valuation, auditing and related services provided in the 12 months prior to the voluntary public tender offer registration request
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day period from January 24, 2008 to April 23, 2008; III. A description of the methodologies applied in the valuation of the shares issued by BRT using economic value and book value of the shareholders equity criteria; and IV. Tables with data used in the calculation of values. 14. In addition to the information required in article 8, paragraph 3 of CVM Instruction No. 361/02, this Valuation Report provides additional information aimed at supplementing the analysis presented herein and supporting the conclusion on the calculated value of the shares of BRT 15. In compliance with article 8 (V) (b) of CVM Instruction No. 361/02, Credit Suisse represents that, among the valuation criteria presented in this document, it believes the methodology of volume weighted average price of shares issued by BRT over a 90-day period from January 24, 2008 to April 23, 2008, as per item XII (d), of schedule III of CVM Instruction No. 361/02, to be the most appropriate for determining the value range of the shares issued by BRT 16. CSs internal process for the approval of the Valuation Report involves the following stages: I. Discussion about the methodology and assumptions to be applied in the valuation with the team involved in the operation; and II. After preparation and revision of the Valuation Report by the team involved, submission of the Valuation Report for the analysis of an internal bank committee, composed of the banks CEO, the director of the investment banking division, legal counsel and other members of the committee, and others responsible for the departments involved in the transaction
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Market
Brasil Telecom operates in the states of Acre, Gois, Mato Grosso, Mato Grosso do Sul, Paran, Rio Grande do Sul, Rondnia, Santa Catarina, Tocantins and Distrito Federal, in the North, Midwest and Southern regions, occupying an area of 2.9 million km2 around 33.5% of Brazils national territory Growth in the number of lines in service in the region
Fixed line
!
Between 2006 and 2007, the number of fixed-line telephones globally grew less than 1%, remaining in the range of 1.3 billion, equivalent to a density of approximately 19 lines in service per 100 inhabitants. The number of broadband accesses rose from 279 million to 332 million, representing growth of around 19% in the period. The number of mobile phones in the world increased from 2.7 billion to 3.3 billion between 2006 and 2007, which corresponds to a penetration rate of approximately 1 mobile phone for each 2 inhabitants. In 2007, Brazil consolidated itself as the fifth largest mobile phone market in the world, with around 121 million mobile phones.
Wireless
!
2005
2006
Brazilian market
Source: Teleco.
1Q08
Fixed line
!
The number of lines in service in Brazil totaled 35.0 million in 2007, a decline of 2% versus the previous year, when lines in service totaled 35.7 million. The number of broadband subscribers in Brazil grew 38% to 7.7 million in 2007, versus 5.5 million in 2006. The number of mobile phones operating in Brazil was 121 million in 2007, posting growth of 21% versus the previous year, when accesses totaled 99.9 million. GSM is the most popular technology, with market share of 78.5% in 2007. The CDMA technology accounts for 17.3% of accesses in operation, followed by TDMA, with 4.3%.
States in which Brasil Telecom operates State Acre Federal District Gois Mato Grosso Mato Grosso do Sul Paran Rio Grande do Sul Rondnia Santa Catarina Tocantins Brazil
Source: Anatel. As of March 31, 2008. (1) Lines per 100 inhabitants.
Installed lines (mn) 99 888 1,264 530 470 2,737 2,600 248 1,601 168 41,872
Density
(1)
Wireless
!
4.8 113.5 41.7 7.2 13.3 104.4 22.9 1.5 93.5 2.1 20.6
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Description of BRT
Company overview
Company description ! Brasil Telecom S.A. provides services in the fixed line, wireless, data solutions, internet, video and data center segments in an area of around 2.9 million km2, equivalent to around 33.5% of Brazils national territory. ! Created after the spin-off of Telebrs, on May 22, 1998, Brasil Telecom Participaes S.A. at that time called Tele Centro Sul Participaes S.A. was acquired in the privatization auction held on July 29, 1998. Performance in Q1 2008 ! Brasil Telecom S.A. ended Q1 2008 with around 8 million fixedline telephones in service, more than 4.5 mobile phones in service, 280,000 public phones and 1.6 million ADSL (broadband) accesses. ! The average market share of BRT in its operating region in Q1 2008 was 84.6% in the intra-regional segment, 89.7% in the intrasector segment, 64.3% in the inter-regional segment and 38.8% in the international segment. ! Fixed-line ARPU (excluding data communication) was R$78.89 in Q1, 1.3% higher yoy. Including revenue from data communication, ARPU in Q1 was R$101.35, 6.0% higher yoy. ! Overall ARPU of the mobile segment in Q1 was R$29.80, 14.4% lower yoy.
Ownership structure
Brasil Telecom Brasil Telecom Participaes S.A. Participaes S.A.
Total ON PN 67.3% 99.1% 40.6% Total ON PN
Market share
2.2% 33.9% 40.3% 23.6% 2006 2.3% 34.2% 40.6% 22.9% 2007 BrT Oi 2.3% 34.0% 40.8% 22.9% Jan-08 Telefonica 2.3% 34.2% 40.4% 23.0% Fev-08 Other 2.3% 34.3% 40.4% 23.1% Mar-08
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18
19
2005
2006
2007 03/31/08 Loans and financing Suppliers Taxes payable Dividends payable Provisions Other obligations Current liabilities Loans and financing Provisions Taxes Authorization to Explore Telecom Serv. Others Minorities' interest Long-term liabilities Paid-in capital Capital reserve Profit reserves Retained earnings Shareholders' equity
2005 1,489.4 1,786.5 975.7 376.6 265.1 470.0 5,363.3 3,418.8 1,112.7 315.4 9.4 374.5 16.7 5,247.6 3,435.8 1,362.9 287.7 410.3 5,496.6
2006 1,109.6 1,474.7 888.3 412.9 218.8 512.2 4,616.4 4,265.6 1,158.9 62.5 50.2 303.5 12.4 5,853.1 3,470.8 1,327.9 309.3 420.3 5,528.3
2007 03/31/08 496.8 1,482.6 820.8 764.8 298.9 513.5 4,377.5 3,886.6 1,281.5 111.1 62.6 272.0 8.5 5,622.4 3,470.8 1,327.9 349.2 428.1 5,575.9 514.2 1,376.1 846.0 974.3 257.6 480.7 4,448.9 3,830.1 1,287.8 246.9 69.9 177.9 7.6 5,620.1 3,470.8 1,329.7 349.2 504.4 5,654.0 15,723.1
Cash and financial investments Accounts receivable Recoverable taxes Inventory Other current assets Current assets
Deferred income taxes Judicial deposits Other long-term assets Long-term assets Investments PP&E Intangible Deferred Fixed assets Total assets
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2005 Gross revenues Fixed lines Wireless Data services Revenue Deductions Net revenues Growth % Gross profit Margin % EBITDA Margin % Depreciation and amortization EBIT Margin % Financial revenue (expense), net Net income (loss) Margin %
Source: Standardized financial statements, CVM. (1) LTM = Last twelve months ended on March 31, 2008.
2006 15,111 11,421 1,426 2,264 (4,815) 10,297 1.6% 3,831 37.2% 3,505 34.0% (2,722) 783 7.6% (639) 432 4.2%
2007 15,997 11,204 2,024 2,769 (4,939) 11,059 7.4% 4,675 42.3% 3,814 34.5% (2,465) 1,349 12.2% (613) 797 7.2%
LTM(1) 16,136 11,159 2,060 2,917 (5,007) 11,130 0.6% 4,802 43.1% 3,774 33.9% (2,360) 1,414 12.7% (523) 876 7.9%
14,687 12,031 732 1,924 (4,549) 10,139 11.8% 3,615 35.7% 2,734 27.0% (2,669) 65 0.6% (1,223) (304) (3.0%)
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2005 Lines in service Growth % ADSL accesses Growth % Number of wireless subscribers (thousand) Post-paid Pre-paid 9,560 0.6% 1,014 89.3% 2,213 1,520 693
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4. Valuation of Brasil Telecom 4.2. Weighted average price of the shares on the BOVESPA
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4,000,000 4.000.000
Weighted average between 04/25/2008 and 05/30/2008: R$48.09
60.00 60,00
50.00 50,00
Preo em Price (R$ per share) R$ / ao
2,500,000 2.500.000 2,000,000 2.000.000 1,500,000 1.500.000 1,000,000 1.000.000 500,000 500.000 0 0
jan-07 Jan-07 fev-07 Feb-07 abr-07 Apr-07 mai-07 May-07 jul-07 Jul-07 set-07 Set-07 out-07 Oct-07 dez-07 Dez-07 jan-08 Jan-08 mar-08 Mar-08 mai-08 May-08
40.00 40,00
30.00 30,00
20.00 20,00
10.00 10,00
--
Volume Volume
Source: Economtica as of May 30, 2008.
Price Preo
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160,000,000 160.000.000 Weighted average between 04/25/2008 and 05/30/2008: R$19.39 140,000,000 140.000.000 Weighted average between 04/24/2007 and 04/24/2008: R$15.46 120,000,000 120.000.000
25.00 25,00
20.00 20,00
100,000,000 100.000.000 80,000,000 80.000.000 60,000,000 60.000.000 40,000,000 40.000.000 20,000,000 20.000.000 0 0
jan-07 Jan-07 fev-07 Feb-07 abr-07 Apr-07 mai-07 May-07 jul-07 Jul-07 set-07 Set-07 out-07 Oct-07 dez-07 Dez-07 jan-08 Jan-08 mar-08 Mar-08 mai-08 May-08
15.00 15,00
10,00 10.00
5.00 5,00
--
Volume Volume
Source: Economtica as of May 30, 2008.
Price Preo
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Volume weighted average price of the common and preferred shares on the BOVESPA
R$ per share, except when otherwise indicated
BRTO3 12-month period prior to the release of the Material Fact(1) 04/24/2007 - 04/24/2008 Number of shares (mn)(2) Market capitalization (R$ mn) Value per share weighted by the number of shares of each class Period between the release of the Material Fact and the date of the Valuation Report 04/25/2008 - 05/30/2008 Number of shares (mn)(2) Market capitalization (R$ mn) Value per share weighted by the number of shares of each class 90-day period between 01/24/08 and 04/23/08 01/24/2008 - 04/23/2008 Number of shares (mn)(2) Market capitalization (R$ mn) Value per share weighted by the number of shares of each class R$ 39.85 249.6 R$ 9,947.3 R$ 39.85 R$ 48.09 249.6 R$ 12,002.5 R$ 48.09 R$ 33.51 249.6 R$ 8,363.7 R$ 33.51
BRTO4
R$ 15.46 297.7 R$ 4,600.7 R$ 15.46 R$ 19.39 297.7 R$ 5,771.9 R$ 19.39 R$ 17.67 297.7 R$ 5,258.5 R$ 17.67
Source: Economtica as of May 30, 2008. (1) Material Fact dated April 25, 2008 regarding the acquisition of indirect control of Brasil Telecom and Brasil Telecom Participaes. (2) Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
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27
03/31/08
Total assets (-) Total liabilities (-) Minority interests = Shareholders' equity Total number of shares (million)
R$/share PN and/or ON
Source: Financial statements of BRT. Base date: March 31, 2008. (1) Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
(1)
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4. Valuation of Brasil Telecom 4.4. Economic value based on market multiples of comparable companies methodology
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Telesp: Operates local fixed telephone line services in the State of So Paulo and provides Internet services GVT: Offers products and solutions for conventional fixed telephone lines, data transmission services to companies, Internet services (broadband and ISP), and VoIP services Vivo: Provides mobile phone services via the GSM, CDMA and TDMA systems TIM: Offers mobile phone services in the entire Brazilian territory via the GSM system Telemar: Provides fixed and mobile telephone services, data communication, Internet and paid-TV Tele Norte Celular: Provides mobile phone services via the GSM/EDGE and TDMA systems America Mvil: Provides mobile communication services in Latin America via the GSM system Telmex: Provides local and long-distance fixed line telephone services in Mexico, and Internet and data transmission services in Brazil, Argentina, Chile, Colombia and Peru. It also offers paid-TV services in Brazil and telecommunication services in Ecuador
! ! ! !
Credit Suisse believes it is reasonable to take the group of companies above as a parameter for calculation of multiples, since (i) a significant part of their revenues comes from similar activities to those provided by BRT and/or (ii) these companies operate in the telecom market in Brazil or Latin America
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Net Income
CAPEX
Wireline
Other
6,425 2,363 59
Wireless Amrica Mvil Vivo Participaes TIM Participaes Tele Norte Celular Integrated Telemar
(2)
10,493 (99) 76 3
4,436
20,717
3,523
6,442
2,358
2,328
Source: Companies. (1) Gross revenues breakdown. Total net revenues of R$14,728 million. (2) Gross revenues breakdown. Total net revenues of R$17,584 milion.
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Company
Wireless
America Mvil
(6) (7) (7) (7)
Integrated
Telemar
(7)
3,734
20,876
24,611
3.82x 5.67x
3.71x 5.84x
(1) Local currency in millions. It includes equity turnover of all classes of shares and, if applicable, ADRs. (2) Net debt as of March 31, 2008. (3) Average share price in the 30-day period ended on 05/30/08. (4) Enterprise value = net debt + market capitalization. (5) LTM = Last twelve months ended on March 31, 2008. (6) In Mexican Pesos. (7) In Brazilian reais. Note: The market capitalization of the Brazilian companies was calculated considering the prices and number of ON and PN shares, except for GVT which has ON shares only. Note: For the purpose of calculating the multiples, the net debt of Tele Norte Celular and Telemar were calculated adding the net debt of the controlling company to the net debt of the operating Note: company (proportional to the ownership stake that the holding company has in the operating company). Source: Bloomberg and companies' financial statements. Updated as of 05/30/08.
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3/31/08 514.2 974.3 257.6 1,746.0 3,830.1 1,287.8 5,117.9 6,863.9 2,087.7 0.0 201.2 7.6 1,679.6 3,976.1 2,887.8
x EV/EBITDA Multiple = BRT enterprise value (-) BRT net debt (03/31/2008) = BRT total equity value . PN shares
(1)
Loans and financing Dividends payable Provisions Short term debt Loans and financing Provisions Long term debt Total gross debt Cash and financial investments Dividends receivable Temporary investments Loans and financing Judicial deposits Cash and financial investments Net debt
Financial statements of BRT and Credit Suisse. For further information on the value breakdown between different classes of shares of BRT, see page 34 of this Report. LTM = Last twelve months ended on March 31, 2008. Source: BRT (BRT had 13,572,523 treasury preferred shares as of March 31, 2008).
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The distribution of the total equity value among ON controlling, ON minority and PN shares issued by BRT was done according to the following criteria:
R$ per share, except when otherwise indicated
1. Equity value Total number of shares (millions) Price per share 19,160.9 547.3 35.01
1. Total value of the shares reflects the economic value of the shares of BRT
2. Equity value of ON controlling shares Number of ON controlling shares (millions) Price per ON controlling share
2. Value of the ON controlling shares reflects the control premium of 25.0% over minority common shares, consistent with the implicit premium defined by Brazilian Corporate Law(1)
3. Equity value of ON minority shares Number of ON minority shares (millions) Price per ON minority share (control ON x 80%) 4. Equity value of PN shares Number of PN shares (millions) Price per PN share
3. The value of ON minority shares reflects a historic spread (90 days) of 128% on PN shares, as per appendix A
4. Value of the PN shares reflects the remaining value of the shares after distributions in 2 and 3
(1) As stated on Article 254-A of Law 6.404 from 12/15/1976 (Brazilian Corporate Law), the sale of the control of a public company triggers an obligatory tag along offer to the minority shareholders on a price of at least 80% of the acquisition price per common share of the controlling block. Therefore, the implicit control premium is (1/ 80% - 1 = 25%).
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35
(Average prices of BRTO3 / Average prices of BRTO4) - 1 105.5% 120.1% 127.9% 114.7% 119.7%
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Valuation methodology
CS valued BRT using the methodology of the volume weighted average price of the preferred and common shares issued by BRT and traded on the BOVESPA Calculation methodology
!
The data series of average turnover, number of shares traded and volume weighted average daily price were gathered (source: Economtica) The data series of volume weighted average daily prices was already adjusted for dividends and other earnings and by stock splits/reverse stock splits
The simple arithmetic mean of the volume weighted average daily prices was calculated 90-day period between 24 January 2008 and 23 April 2008 was used as a reference, as it represents a parameter of recent market prices, not affected by the formal announcement of the acquisition of the controlling stake of BRT / BRP through the Material Fact of April 25, 2008
CS adopted the volume weighted average price of the shares criterion to value BRT shares, for the following reasons: i. The market price is a very important reference for the value of an asset; Ii. The preferred shares of BRT have broad liquidity and are part of the Bovespa index; and Iii. BRT is covered by equity research departments of different investment banks, ensuring that its stock prices adequately reflect its growth, profitability and risk outlook
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39
ARPU: average revenues per user. EBIT: earnings before interest and taxes. EBITDA: earnings before interest, taxes, depreciation and amortization. NPV: net present value. Spread: difference between prices of two shares.
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41
2.
3.
4.
42
6.
7.
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9.
10. Telemar has agreed to reimburse us for our expenses and to indemnify us and certain persons related to us for certain liabilities and expenses that may arise as a result of our retained services. 11. Credit Suisse (as commission merchant under articles 693 to 709 of the Brazilian Civil Code) entered into a commission agreement with Telemar (as principal) on 25 April 2008 (Commission Agreement) whereby Credit Suisse committed, subject to the terms and conditions of the Commission Agreement and articles 693 to 709 of the Brazilian Civil Code, to contract with the controlling shareholders of BRT and Brasil Telecom Participaes S.A. (BRP) the acquisition of the controlling shares of BRP / BRT, on its own behalf, but for the account and at the order of Telemar. Also on 25 April 2008, a share purchase agreement (Share Purchase Agreement) was executed between the controlling shareholders of BRP and BRT, Credit Suisse (with the consent of Telemar), Invitel S.A. (Invitel) and Solpart Participaes S.A. (Solpart), under which Credit Suisse, as commission merchant of Telemar, agreed to acquire the controlling shares of BRP / BRT on its own behalf, but for the account and at the order of Telemar, subject to the conditions established in the Commission Agreement and Share Purchase Agreement. If the National Telecommunications Agency (Anatel) takes measures to implement regulatory measures or to change the norms currently in effect thus eliminating the regulatory restrictions currently existing, Credit Suisse will assign all its rights and obligations set forth in the Share Purchase Agreement to Telemar, as established in the Commission Agreement, so Telemar itself will submit the acquisition of the controlling shares of BRP / BRT to Anatel. Pursuant to the Commission Agreement and Share Purchase Agreement, Credit Suisse will not exercise, until the agreed upon purchase and sale is completed, any type of power or influence in the management of the corporate activities of Invitel, Solpart, BRT, BRP or any of their respective direct or indirect subsidiaries.
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This Valuation Report is the intellectual property of CS. The financial calculations contained in this Valuation Report may not result in exact sums due to rounding.
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BANCO DE INVESTIMENTOS CREDIT SUISSE (BRASIL) S.A. Avenida Brigadeiro Faria Lima, 3064 13th floor 01451-000 So Paulo, SP +55 11 3841 6000 www.credit-suisse.com
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