MCI seeks buyers for Embratel stake

Ashburn, Virginia-based long distance operator MCI is seeking buyers for its controlling stake in Brazilian telco Embratel Participacoes (NYSE: EMT), MCI said in a statement. MCI holds 52% of EMT voting shares, and 19.3% of the total stock. "This divestiture will enhance the ability of both companies to focus on key strategic opportunities more closely aligned with each company's core businesses," MCI corporate development and strategy vice president Jonathan Crane said. MCI will maintain a "substantial" commercial relationship with Embratel, he added. Market speculation suggested Embratel is worth about US$400mn. The Brazilian telco is not such an attractive asset, as 75% of its revenue comes from long distance, a segment on the downfall due to increasingly competitive prices worldwide, said Jeffrey Noble, telecoms analyst with Spanish investment bank BBVA. Embratel's allure lies in its data services potential, but that segment has not taken off as quickly as most had expected, he said. However, the operator is taking all the right steps to improve its financial health, by declaring its wish to expand outside Brazil through acquisitions, its purchase of Brazilian telco Vesper, and its decision to outsource its IT network at the beginning of the year, Noble said. Embratel's most likely buyer is Mexico's Telmex (NYSE: TMX), owned by regional communications magnate Carlos Slim, with Slim's cellular unit America Movil (NYSE: AMX) another possibility, although its recent purchase of AT&T Latin America would overlap operations in Brazil, he said. Spain's Telefonica is the only other visible buyer today in the Latin America telecoms market, but it cannot buy Embratel due to local regulations that prevent one incumbent operator from buying another. MCI has contracted Lazard LLC and Weil, Gotshal and Manges to manage the sale process. Late Thursday, Embratel's American Depositary Receipts on the New York stock exchange were trading at US$17.58 apiece, up 2.81% from Wednesday's close of US$17.10.