Equity analysts were astounded by a report from Ernst & Young that throws doubt on the ability of Net Serviços, Latin America?s largest MSO, to continue operating. Published together with Net?s third-quarter financial statements, the special opinion from independent auditors Ernst & Young says ?the Company has presented continuous operating losses and a deficiency of working capital, evidencing its reliance on financial support from its main creditors and generating uncertainty as to its ability to remain in operation?. According to market professionals consulted by PAY-TV News, Net?s best hopes now depend on the possibility of acquisition by a strong foreign group. Its market cap is 618 million Brazilian Reals (currently about 177m US Dollars) and its debts amount to 1.1bn BRL (314m USD). On those criteria alone, the buyer would have to commit some 500m USD.
Sale?
There are rumors of two possible buyers. One is Rupert Murdoch?s News Corp., although on announcing the group?s quarterly earnings report a few days ago Mr Murdoch denied having any plans to acquire even the portion of Sky Brazil?s equity he doesn?t already own (Sky?s other major shareholders are Globo and Liberty) or buying out Sky?s other Latin American operations, given the ?potential political and economic risks? in the region. The other rumor centers on Bassini, Playfair & Wright, also believed to be interested in Embratel and to have held talks with Brasil Telecom, Telemar and Telefonica on a possible ?bailout? for Net. In this case the problem would be regulatory obstacles. Net owns one of the largest access networks apart from those of the incumbent local exchange carriers. If an ILEC or group of ILECs tried to acquire Net, the deal would almost certainly run foul of Brazil?s anti-trust authorities by threatening to create a near-monopoly in access.