Brasil Telecom: Up 7% or down 4%?

Brasil Telecom (BTM) is either up 7% or down 4%, depending on how much you take the volatile market to heart.

Tuesday, BTM was building a healthy one-day gain of 12%… until 4 p.m., when, for 30 minutes, the stock plummeted 8.5% to a close of $21.88.

Wednesday morning BTM opened at $24.11, as though nothing happened Tuesday afternoon. I’m inclined to agree with the stock, and ignore Tuesday’s close as an absurdity of the market crash, which means you should take any gains, at least those figured by your favorite stock info service (like Google or Yahoo), with a grain of salt.

If you remove Tuesday’s freak collapse, you still end up with a stock that’s been leaking value for the last six months.

Brazilian competitor Oi (Tele Norte Leste Participacoes) (TNE) made a deal to buy out BTM for 8 billion reals (about $4.1 billion) in late March, which measures the company’s value at about $23 per share. But the merger has yet to go forward because of regulatory issues in Brazil’s telecom industry.

As Brazilian law stands, one fixed-line phone company can’t buy another if the two are in different license areas. I don’t know what the logic is behind that, but keep in mind that Brazil is the country that just opened its oil industry to non-government-owned competitors ten years ago. It’s rather protectionist.

Oi is expecting a legislation change in the next few months. But even if the legislation does change, don’t expect great things from BTM, the buyout was already priced into the stock. And I’d be surprised if it moved above $25 on the news. Of course, in these markets, you can never tell what will send investors into a frenzy.

Stock position: None.

Comments

[Urbane Gori...:]

Well.. It dropped again Wednesday... I figure you're over-thinking these actions... Looks to me it's just bouncing around as good and bad news comes out of the US Congress.. Until the House votes, there is no trend and there is only volatility. Come Friday, you'll know whether you should have bought today, or sold everything you own today. I sincerely hope Dubya carries some smidgen of credibility with his own Party, otherwise Wall Streeters will be tumbling from the sky. Didn't he say at one time that he had a 'mandate from the American people'.... Nah!... He couldn't possibly string that many words together without stuttering.

jegan ;-)

2008 Oct 02 01:27 PM