Telefnica Eyes Stake in Argentinas Multicanal

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Buenos Aires, Argentina-Argentine MSO Multicanal S.A. has initiated talks with Spain's Telefónica S.A. that could result in the communications giant buying a 50 percent stake in one of South America's largest cable operators.

A spokesperson for Multicanal owner Grupo Clarín confirmed the negotiations, but would not reveal how big a stake was under discussion, nor when an announcement would be made.

Telefónica president José Antonio Ríos corroborated Multicanal's account of the events in comments made to an Argentine newspaper.

According to industry sources, Clarín's worries about sharing control with the Spanish firm, plus discrepancies over a final price, are holding up the deal.

Analysts said Telefónica could end up paying between $2,500 and $3,000 per subscriber for a 50 percent stake in the 1.5 million-subscriber operator.

"The likelihood of an eventual deal should really come as no surprise," said Bruce Stanforth, head of Latin American corporate research for BNP Paribas Group in New York. "Telefónica has a huge war chest with which to invest in Latin America's pay TV market, so the real question is: Who are they not negotiating with?"

Stanforth added that Clarín has been looking for a cash-flush telco partner for Multicanal for more than year now. For Telefónica, Multicanal represents one of the last investment opportunities available to attack Argentina's 5 million-subscriber cable market, the region's largest.

Although analysts expect the deal to eventually go through, some considered the delay of an announcement as a sign of possible future discord.

Indeed, insiders said, relations between the two companies have been strained since the mid-1990s, when Telefónica Internacional S.A. sold its minority investment in Multicanal and bought into its main cable rival, CableVisión.

Today, that entity is majority controlled by U.S. investment fund Hicks, Muse, Tate & Furst Inc. and Liberty Media International Inc.

Telefónica and Clarín "are both firms that are used to exercising full control over their investments, so I'm skeptical of how a 50-50 power-sharing deal would work out in the medium to long term," Stanforth said.

A final deal would also have to take into account Multicanal's 20 percent stake in Argentina's No. 3 MSO, Supercanal Holding S.A., which recently filed for bankruptcy protection.

Despite the long-term attractiveness of Supercanal's 380,000 subscribers in Argentina's interior, analysts said, Telefónica would most likely transfer responsibility for Multicanal's investment in the system to Clarín.

Earlier this year, Telefónica agreed to sell its 36 percent stake in CableVisión to HMT & F when the two companies agreed to divide $4 billion worth of assets owned by their CEI Citicorp Holdings S.A. joint venture.

As part of the breakup, Telefónica gained CEI's stake in Telefónica Argentina S.A., the nation's largest telecommunications company, thus clearing the way for a consolidation of its panregional telco and Internet assets.

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