Brazilian Group Submits Enhanced Bid to Buy WorldCom's Brazilian
Unit
Adds 'Make Whole' Agreement to Eliminate Risk to WorldCom
SAO PAULO, Brazil, April 7 /PRNewswire-FirstCall/ --
Calais Participacoes, S.A.
today enhanced its US$550 million offer to purchase WorldCom Inc.'s interest in
its Brazilian subsidiary, Embratel Participacoes S.A. ("Embratel"). Under its
enhanced offer, Calais would guarantee that WorldCom receives a minimum of
US$360 million for the sale of its interest in Embratel -- the same amount being
offered by Telefonos de Mexico, S.A. de C.V. ("Telmex") to buy Embratel -- in
the event that, contrary to Calais' belief, its acquisition of Embratel does not
receive necessary Brazilian regulatory approval.
"We are eliminating any downside risk to WorldCom by assuring that WorldCom
would receive no less than the US$360 million offered by Telmex in the worst
case, and US$550 million upon consummation of the sale to Calais," said Otavio
Azevedo on behalf of Calais. "Our offer is clearly higher and better than the
Telmex offer. Now that we have enhanced our offer by removing the purported
regulatory risk, how can WorldCom, its Board of Directors, its creditors and its
advisors forego an additional US$190 million in cash?," said Azevedo.
On March 25, 2004, Calais offered to purchase 100 percent of the voting common
stock of Embratel held indirectly by WorldCom for US$550 million. The purchase
price offered by Calais is US$190 million (or 52.8%) more than that offered by
Telmex pursuant to its publicly disclosed March 12, 2004 agreement with
WorldCom.
Under the "make whole" provision, if the Calais transaction is not consummated
as a result of Calais' inability to obtain necessary Brazilian regulatory
approval, Calais will pay to WorldCom, as liquidated damages, the loss, if any,
equal to the difference between US$360 million -- the Telmex bid price -- and
the gross sale proceeds received by WorldCom upon consummation of the sale of
its Embratel shares to another buyer.
"The decision to provide this downside protection to WorldCom was driven by our
confidence in the advice of our regulatory advisors -- who are some of the best
known and most highly respected experts in this field in Brazil -- that Calais'
offer will be approved and that the regulatory concerns raised by WorldCom are
without merit," Mr. Azevedo said.
The "make whole" agreement is subject to, among other things, the good faith
cooperation of WorldCom and Embratel in getting regulatory approval of the
transaction with Calais and, if necessary, conducting the sale of WorldCom's
interest in Embratel to an alternative purchaser.
Attached is a copy of the letter proposal that Calais sent to WorldCom late last
night.
Calais is owned by Geodex Communications S.A. and three of Brazil's leading
telecom companies: Brasil Telecom S.A. (NYSE:BTM), Telemar Norte Leste S.A.
(NYSE:TNE) and SP Telecomunicacoes Holding Ltda., a Brazilian unit of Telefonica
(NYSE:TEF).
CALAIS PARTICIPACOES S.A.
April 6, 2004
WorldCom Inc.
Attn: Mr. Jonathan Crane
Dear Mr. Crane:
On March 25, 2004, Calais Participacoes S.A. ("Calais") offered (the "Original
Alternative Proposal") to purchase 100% of the voting common stock (the "Common
Stock") of Embratel Participacoes S.A. ("Embratel") held indirectly by WorldCom
Inc. ("WorldCom") for US$550 million. The price offered by Calais is US$190
million (or 52.8%) more than that offered by Telefonos de Mexico, S.A. de C.V.
("Telmex") pursuant to its publicly disclosed March 12, 2004 agreement with
WorldCom. While Calais has received no formal response to its Proposal, Calais
understands that, notwithstanding strong evidence that it will receive all
necessary Brazilian regulatory approvals for the transaction, WorldCom remains
skeptical that such approvals will be obtained in a timely manner. Moreover,
WorldCom's representatives have been unwilling to engage in "active
negotiations" or candid discussions with Calais lest they provide Telmex with a
basis to terminate its agreement.
Calais is hereby revising the Original Alternative Proposal to eliminate any
risk to WorldCom if, contrary to our belief, the transfer of the Common Stock to
Calais does not receive necessary Brazilian regulatory approval. If the Calais
transaction is not consummated on or before July 8, 2005 as a result of Calais'
inability to obtain necessary Brazilian regulatory approval by such date (under
circumstances where the conditions set forth in Sections 6.01 and 6.02 of the
Agreement annexed to the Original Alternative Proposal have otherwise been
satisfied), Calais will pay to WorldCom, as liquidated damages, the loss, if
any, equal to the difference between US$360 million and the gross sale proceeds
received by WorldCom and its affiliates upon consummation of the sale of 100% of
the Common Stock to another buyer. This "make whole" agreement is subject only
to the following:
(a) WorldCom uses good faith reasonable business efforts to sell the
Common Stock at fair value (in a private sale, public sale or public
offering), including hiring one or more investment bankers of
international reputation to manage the sale process;
(b) The sale process is commenced promptly upon the earlier of (i) written
notification from Calais that it is unable to close the Calais
transaction and (ii) July 9, 2005 (the "Notice Date");
(c) WorldCom enters into a definitive agreement to sell the Common Stock
to another purchaser (other than a purchaser affiliated with WorldCom)
within one year from the Notice Date;
(d) WorldCom does not take any action or permit Embratel to take any
action which would materially impair the value of the Common Stock to
a subsequent purchaser unless in the good faith business judgment of
the Board of Directors of WorldCom such action is required to fulfill
its fiduciary duties to Embratel and its shareholders; and
(e) WorldCom uses its power as controlling shareholder of Embratel to
cause Embratel to cooperate in good faith with Calais in seeking
regulatory approval of the Calais transaction. Among other things,
WorldCom would cause Embratel's senior management to cease their
opposition to the transaction.
The US$50 million up front deposit contained in the Original Alternative
Proposal would be credited against any amounts owed under the "make whole"
provision set forth in the preceding paragraph, and would be repaid to Calais to
the extent the "make whole" payment is less than US$50 million or if no "make
whole" amount is payable. Calais is prepared to discuss supporting its "make
whole" payment obligation through a mutually acceptable arrangement such as an
escrow or standby letter of credit.
Except as set forth herein, the terms and conditions of the Agreement and the
related Guarantees included in the Original Alternative Proposal remain in full
force and effect. Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Original Alternative Proposal.
It is undisputable that Calais' offer is significantly superior to the Telmex
offer from a financial perspective. As revised, our offer would also eliminate
any purported regulatory risk by ensuring that WorldCom would receive no less
than the US$360 million offered by Telmex in the worst case with the probable
upside of an additional US$190 million.
This Proposal is driven by our confidence in the advice of our regulatory
advisors that the purported regulatory concerns are without merit and by our
frustration at the slanted treatment we have received from the senior management
of Embratel. The Original Alternative Proposal was accompanied by English
translationsof six written opinions supporting Calais' conviction that it will
obtain all required regulatory approvals in Brazil. These opinions were written
by some of the best known and most highly respected experts in this field in
Brazil. These individuals have impeccable reputations in Brazil for both their
expertise and their integrity. Their well-reasoned opinions -- and Calais'
repeated offers to meet to fully explain its basis for believing that regulatory
approval will be obtained -- have, to all appearances, been disregarded.
During the course of the Embratel sale process, Embratel's senior management has
waged a campaign that has unfairly maligned Calais' offer and has prevented
Calais from having a fair opportunity to participate in the process. Embratel's
management has repeatedly made false and inflammatory public statements
disparaging Calais' offer and otherwise has worked to sabotage Calais'
participation in the process. For example, it has become accepted lore
(repeated by WorldCom creditors) that ANATEL caused the due diligence process to
be halted because it learned that Calais was one of the prospective bidders and
that ANATEL subsequently barred Calais from further access to the data room.
This understanding, fostered by Embratel, is cited as evidence that Calais will
be unable to obtain regulatory approval. In fact, ANATEL's expressed concern
regarding the data room procedures applied to all competitors of Embratel,
including Telmex, and ANATEL's subsequent determination to permit the process to
continue stressed that "it is entirely up to the Concessionaire [Embratel] and
its officers" to determine who would be permitted access and what information
they would receive.
Calais reiterates its request to WorldCom, its advisors and other interested
parties, including representatives of WorldCom's Creditors Committee, to meet in
person with Calais and its representatives to clarify (i) any and all of the
terms of this revised Proposal, and (ii) the basis for Calais' confidence that
regulatory approval will be obtained. Calais' regulatory experts are also
available to discuss their opinions and analyses with you.
We urge you and WorldCom's Board of Directors, in the exercise of its fiduciary
duty, to devote immediate attention to this matter. Given the scheduled April
13, 2004 Bankruptcy Court hearing, your failure to act immediately would result
in the loss of this compelling opportunity to WorldCom and its creditors and
shareholders.
We look forward to your response.
Very truly yours,
CALAIS PARTICIPACOES S.A.
By: /s/ Roberto Lins Affonso da Costa
Name: Roberto Lins Affonso da Costa
Title: Attorney-in-fact
cc: Honorable Arthur J. Gonzalez
Marcia L. Goldstein, Esq.
Danny Golden, Esq.
Mr. Frank A. Savage
DATASOURCE: Calais Participacoes, S.A.
CONTACT: Jeffrey Lloyd or Steven Goldberg, both for Calais
Participacoes, S.A., +1-212-573-6100