Venezuelan Government and Verizon Agree to Telecom Nationalization

The Venezuelan government and New York-based Verizon Communications signed a memorandum of understanding for the government’s purchase of the private company’s majority stake in the Venezuela's largest telecommunications company CANTV.

Caracas, February 13, 2007 (— The Venezuelan government and New York-based Verizon Communications Inc.’s executive vice president for strategy, development and planning, John Diercksen, yesterday signed a memorandum of understanding for the government’s purchase of the private company’s majority stake in the country’s largest telecommunications company, Compania Anonima Nacional Telefonos de Venezuela (CANTV).

“We worked on, and discussed this price with Verizon, and the negotiated cost satisfies Verizon and the Venezuelan State,” Telecommunications Minister Jesse Chacon stated at the event held last night to sign the agreement.

The government will pay just over US$572 million for Verizon’s 28.51% stake in the company. This represents around 224 million shares priced at US$17.85 per American Depositary Share (ADS), and takes the government’s stake in CANTV from 6.5% to 35%. The remaining shareholders include Spain’s Telefonica with 6.6%, Venezuelan and foreign public stockholders with 49.0%, and employees and retirees, who hold a 9.9% stake.

Venezuela’s Vice-President, Jorge Rodriguez called it “a good deal” for Venezuela because the price the government will pay is 3 points below the offer of US$21 per ADS made by a Mexican consortium led by the tycoon Carlos Slim last year.

Neither party made any reference to whether yearly dividends were part of the agreement, which, if included, could further improve the deal for Verizon shareholders.

Rodriguez said the deal was “transparent” and thanked Verizon for its “intention to resolve this matter in the speediest and most transparent way.”

In his speech, the Vice-President also said that CANTV had had a nine year monopoly, and that by the end of the nineties call rates, “were among the most expensive in the world.”

Rodriguez also made reference to what he alleged were destabilization attempts made by some members of CANTV’s board of directors against President Hugo Chavez’s government. “They dared to conspire, to aid coups and to help destabilization plans,” he said, according to Reuters. CANTV has denied these allegations.

Jesse Chacon said yesterday, “We are heading towards a new CANTV without barriers […] We will combat geographical and social exclusion and the new company will universalize access and make the use of internet in Venezuela widespread.”

The move follows last week’s agreement between the government and AES, the U.S.-based electricity company, for the government purchase of a majority stake in the electricity company Electricidad de Caracas (EDC). This was a major step in the nationalization of strategic sectors of the economy announced by Chavez last month, which aim to bring the oil, electricity, and telecommunications sectors under state control, as part of a move towards what the government has termed “Socialism of the 21st Century.”

In the lead up to the Electricity company nationalization, it was widely reported that the government might expropriate companies—a move which would have violated Venezuela’s nationalization law, which states that a fair price must be paid in any nationalization—leading share prices to go down prior to the state’s purchase of the majority stake in EDC last week.

However, following the agreement last week the President of AES, Paul Hanrahan, called the agreement, in which the government paid $739 million for the 82% stake, and which included the payment of dividends, “fair.”

In reference to yesterday’s memorandum of understanding, Luis Gustavo Richard, an analyst with local brokerage InterAcciones Casa de Bolsa CA., said the deal “had to be pretty good for Verizon, otherwise it could have dragged its feet a little more,” adding, “Verizon obtained sufficient benefits during its operation of the company. Nobody is coming out of this losing,” according to AP.

CANTV was founded by a British Consortium in 1930 and bought over by the Venezuelan State in 1950. It was privatized in 1991, when 40% of its shares were opened to international tender.

The company has 13,000 employees, 3 million fixed-line customers nationally, over 6 million mobile phone customers, and over 100,000 public telephones, of which 83 percent are digital lines.