2007: President Chavez Bought Out Verizon for $572 Million.

CANTV (Compania Anonima Nacional de Telefonos de Venezuela) was founded as a private Company in 1930. Progressively, CANTV acquired other private telephone companies. In 1953, the Government announced its intention to acquire 100% of the shares of CANTV.  Over the following years, it bought up the other privately-owned telephone companies, the last one in 1973.CANTV was re-privatized in 1991 by the government with shares put out to international tender. A group of investors headed by GTE acquired the block of shares submitted.[1] GTE merged with Bell Atlantic to become the US Company Verizon in 2000.  Verizon was the largest shareholder of CANTV, holding 28.5% of its stock. The Venezuelan government owned 6.6% of the shares. The remaining shares were in the hands of the public through the Caracas Stock Exchange and the New York Stock Exchange [1].

 

In 2006, CANTV was the leading provider of telecommunications in Venezuela with more than 3.1 million subscribers of fixed line telephones, more than 5.6 million of mobile lines and more than 343,000 internet subscribers.[1]

 In 2006, President Hugo Chavez threatened to nationalize CANTV if it did not comply with a Court order to pay pensions to some 3400 former employees. [2] He also accused CANTV of tapping his phones at the request of the US government. [3] On January 8, 2007, Chavez declared that all Companies that had been re-privatized by previous governments would be re-nationalized. He said CANTV would be nationalized calling telecommunications vital to national security. Concerns were raised as to whether investors would be fairly compensated [4][5]:

•        “President Hugo Chavez of Venezuela, the very portrait of a modern Latin American strongman… is tightening his grip on the Venezuelan economy. That’s bad news for foreign investors. Mr Chavez omitted from his remarks whether Venezuela would compensate foreign investors for their holdings or expropriate them outright. The Bush administration needs to condemn any seizure of American assets.”

On the NYSE, the value of CANTV’s stock dropped by 14% and fell by 30% on the Caracas Stock Exchange. Both Stock Exchanges suspended trading in CANTV’s stock. On January 10, Ricardo Sanguino, National Assembly Finance Chairman said that the National Assembly would allocate funds to compensate CANTV investors. CANTV’s stock prices recovered following Sanguino’s announcement [6]. On February 13, 2007, the Venezuelan government (represented by Vice President Jorge Rodriguez and Telecommunications Minister Jesse Chacon) and Verizon (represented by Vice President John Diercksen) reached a preliminary agreement for the purchase of Verizon’s CANTV’ shares for $572 million.[7] The financial press reported on the deal:[8]

·        “Optimism was growing on Tuesday among foreign investors after an unexpectedly trouble-free and swift deal for the government to buy US-based Verizon’s stake in Venezuela’s largest held telecoms company. Government officials said Verizon would sell its 28.5% shareholding in CANTV to the state for $572 million, a price that reflected fair value for the assets.”

In May 2007, the Government acquired 79.6%of the CANTV shares through a tender offer on the stock exchanges in Caracas and New York[8] The Government spent a total of $1.3 billion which included the $572 million payment to Verizon. In addition to the 6.6% which it previously owned, the Government gained control of the Company with 86.2% of its total shares [9]

·                      


1. Molina, C. and M. Santos, Case Study: TELMEX and CANTV: Which is the appropriate discount rate? Acadamia, Revista Latinoamericano de Administracion,44, 2010

2.VOA, Chavez threatens to nationalize Venezuela’s telecommunications company, August 15, 2006

3.Associated Press, Venezuela signs agreement to Purchase Verizon Stake in CANTV, February 13, 2007

4.New York Times, Venezuela Inc.’s Hostile Takeover, January 10, 2007.

5. New York Times, Chavez Moves to Nationalize Two Industries, January 9, 2007

6. Venezuelanalysis, Venezuela to Compensate Telcom Owners Upon Nationalization, January 16, 2007

7. Venezuelanalysis, Venezuelan Governmentand Verizon Agree to Telecom Nationalization, February 13, 2007

8.Financial Times, Verizon’s Venezuela deal buoys Investors, February 13, 2007

9.New York Times, Venezuela Seizes Largest Telecom, May 9, 2007

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