Microsoft Corp. made its first equity foray into the Latin
American cable industry last week, buying a $126 million stake in Globo Cabo S.A.,
Brazil's leading MSO.
The investment in Globo Cabo is the latest in a series of
buys this year that has seen Microsoft plunge full-force into cable. It deepened its U.S.
cable presence in May when it agreed to invest $5 billion in AT&T Corp., following a
$1 billion investment in Comcast Corp. in 1997.
The company has also been on an active tear through Europe.
In January, Microsoft paid $500 million for 5 percent of NTL Inc., now Britain's
largest MSO, and $333 million for 7.85 percent of United Pan-Europe Communications N.V.
(UPC), the continent's No. 1 private cable operator. In April, it paid $38.6 million
for 2.5 percent of TV Cabo, the cable and satellite unit of Portugal Telecom S.A.
Microsoft topped those investments in May when it agreed to
buy MediaOne Group Inc.'s 29.99 percent stake in No. 2 British MSO Telewest
Communications plc. Neither company has commented on the value of the deal, but analysts
have estimated MediaOne's stake at between $2 billion and $3 billion.
Under the latest deal, Microsoft will pay $126 million for
voting and nonvoting shares in Globo Cabo representing 11 percent of the company. The
price works out to $6 for each of the Brazilian operator's New York-traded American
depository receipts.
Globo Cabo's ADRs have traded at as low as $1 this
year due to Brazil's economic troubles. They reached as high as $6.63 amid
speculation of the Microsoft investment. At press time last Thursday, they were trading at
$5.81.
Microsoft has the right to buy an additional $31.5 million
worth of Globo Cabo shares over the next three years.
Globo Cabo parent Organizaçoes Globo, one of Latin
America's largest media groups, will continue to control the MSO, while Banco
Bradesco S.A., Brazil's top private bank, will retain a minority stake in the
company.
Microsoft will have a seat on Globo Cabo's board, but
it will not participate in the operator's management, Globo Cabo CEO Moysés
Pluciennik said.
In addition to reducing debt, Globo Cabo plans to use part
of the Microsoft investment to develop its two-way broadband Internet-access service known
as "Virtua." The MSO is awaiting authorization from Brazilian telecommunications
regulator Anatel to launch the service nationally. Virtua is currently being tested on
Globo Cabo's system in the city of Sorocaba, in the state of Sao Paulo.
Globo Cabo is also seeking a strategic partner in the
telephone sector. Additionally, the company is negotiating a partnership with the
government-owned National Bank for Economic and Social Development (BNDES) in order to cut
its $595.9 million debt.
Globo Cabo controls 18 hardwire-cable systems and one
wireless operation. It's active in some of Brazil's biggest cities, including
Sao Paulo, Rio de Janeiro and Belo Horizonte. The MSO has 925,061 subscribers, and its
cable network passes 4.5 million households.
About 70 percent of Globo Cabo's subscribers have
computers at home, and 50 percent of them use the Internet.
As part of the deal, Globo Cabo and Microsoft have
established a committee to study other business opportunities, such as the creation of a
jointly owned Internet portal through a merger of Microsoft's MSN in Brazil and
Organizaçoes Globo's own planned portal. The committee will also study
interactive-television services for Brazil.
Deals with new partners could help Globo Cabo to further
reduce its debt. "It is very likely that we will be bringing additional cash to our
company," Pluciennik said, adding that the new partners could invest more than $200
million in the company.
Pluciennik confirmed that Globo Cabo is currently negotiating with telephone companies
that are interested in buying stakes on the MSO, but he would not disclose further
details. According to market sources, BellSouth Corp. and AT&T are potential partners.
