Case Study

Sonaecom takeover of Portugal Telecom (A)

29 pages
June 2012
Reference: IMD-1-0354

The case is set in February 2006, right after Sonaecom’s announcement of its takeover bid for Portugal Telecom (PT) of €9.50 per share. The reader does not yet know how PT will react and whether its management will accept the offer or not. The case recounts this fascinating and intense M&A transaction, taking us through one of the largest takeover bids ever in the European Telecom sector, with a deal value above €15 billion. How will PT’s board regard this bid? On the one hand, it represents a 20% premium over the prior stock price. On the other hand, it is a terrible blow to the international aspirations of the PT group. Moreover, the sometimes conflicting views of the general public, the competition regulator, employees and the government have the potential to complicate matters further. Lastly, this deal also has important international implications. One thing is sure. Given all the external pressure, for example from regulators, nothing will be the same for PT or the Sonae Group after this offer. The case serves as a rigorous application of valuation methodology with a focus on understanding the difficulties in forecasting future cash flows and the sensitivity of the valuation analysis to underlying assumptions.

Learning Objective

The case offers an opportunity to learn how: a) corporate governance practices vary across companies, including differences between companies that have widely dispersed capital and those with a family controlling shareholder; and b) the role of corporate governance in ensuring that managers undertake activities that maximize shareholder value as well as serving the needs of the company. Furthermore it offers an opportunity to analyze the role of synergies and diversification strategies in creating firm value. Notably it allows the analysis of a variety of strategic, organizational, financial and economic issues associated with mergers and acquisitions. The key focus of the case is on the links between finance and strategy. From a strategic finance perspective: good M&As must create value.

Mergers and Acquisitions, Diversification, Hostile Takeover
Portugal Telecom, Sonaecom, Services, Telecommunications
Published Sources
© 2012
Available Languages
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