Venezuelan Government Issues Offer for Majority Stake in National Telecom

by: Chris Carlson - Venezuelanalysis.com

The Venezuelan government made an offer this week to buy the remaining stocks of the national telephone company CANTV. By buying the majority of the shares in the company, the government will return the company's control to the state. Government officials have said that the intention is to lower costs for the customers and to remove the company from the New York Stock Exchange.

Jesse Chacón, Minister of Telecommunications and Information, made the announcement on Monday that the public offer for CANTV began this week and will last until May 8th, when the government expects to have at least 70 percent ownership of the shares. Chacón said that the company will come under state control by June 4th.

CANTV, one of the largest companies in Venezuela, was privatized in 1991, resulting in a modernization of its technological infrastructure. But Chávez announced in January that he would renationalize those companies that were privatized in the 1990's. The U.S.-based Verizon Communications, which held almost 30 percent of the company, agreed to sell its shares to the government at market price.

"The intention is to take CANTV out of the New York Stock Exchange," said Chacón during a press conference on Monday. In this way the Venezuelan government seeks to eliminate a way of evading exchange controls used by many Venezuelans. By buying shares of CANTV, converting them into ADRs (American Depository Receipts) and later selling them in US dollars, Venezuelans can get around the currency restrictions.

On June 4th, when the company comes under state control, the government will appoint new directors to the company and will begin an aggressive policy of reducing prices and expanding services all over the country, according to the minister.

Chacón said that the government's objective is to offer lower prices that will be fairer for the customers. By doing this the government will generate competition in the telecommunications market, forcing other companies to be more competitive and to lower their prices. According to Chacón, the telecommunications companies in Venezuela set prices as they wish due to a lack of competition in the market.

The Venezuelan government has offered to pay US$ 2.12 (Bs. 4,560.42) for the remaining shares of CANTV, which will rise to US$ 2.55 with the inclusion of a dividend. The government hopes to eventually buy 100 percent of the company's shares.

But workers of the company have complained that this price is not sufficient since share prices were higher before the nationalization announcement. Stock prices dropped about 18 percent upon the government announcement of nationalization. Current workers and retired workers together own about 11 percent of the shares of the company.

Meanwhile, investors have tried to buy up shares for higher than the government offer in a last attempt to convert them into dollars while they can. But Venezuelans were recently able to buy state oil company bonds, which are denominated in dollars, and can resell these in dollars as a legal way to convert their money.

Venezuela signed a US$ 572 million agreement in February to purchase the 28.5 percent stake of Verizon Communications out of New York. They paid $2.55 a share, the same value it now has on the market.

Other shareholders in CANTV include Telefónica of Spain, which holds 6.9 percent. The government holds 6.5 percent, along with the CANTV workers who hold 11 percent. The company also has about 43,000 minority shareholders.