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Billionaire Azevedo Defies EU Snub in Hunt for Portugal Telecom


April 28 (Bloomberg) -- Belmiro de Azevedo, Portugal's richest man, argued for five years that his telecommunications company faced unfair competition from former monopoly Portugal Telecom SGPS SA.

When the European Commission refused to force Portugal Telecom to sell either its fixed-line unit or cable network, the petitioner turned predator. Sonaecom SGPS SA, controlled by Azevedo, is now pursuing a 10.7 billion euro ($13.4 billion) hostile bid for Lisbon-based Portugal Telecom to acquire mobile-phone assets and break up the rival regulators wouldn't touch.

``It's not dismantling, it's refocusing,'' Azevedo, 68, says at the Four Seasons Hotel Ritz in Lisbon, slapping a coffee table for emphasis. ``Our strategy is very clear: majority control, one technology.''

The purchase would give Azevedo the biggest mobile-phone company in Portugal, leapfrogging Vodafone Group Plc in a saturated market. Azevedo, the son of a carpenter, has built a $2.2 billion fortune by transforming a wood-panel maker called Sonae into an international holding company with interests in retailing, tourism, real estate and manufacturing.

Investors are betting Azevedo will have to raise his initial bid of 9.50 euros a share. Portugal Telecom's stock closed at 10.07 euros April 27 in Lisbon, up 23 percent since the bid was announced Feb. 6. Shares of Sonaecom, Sonae's telecom unit, have risen 20 percent to 4.25 euros during the same period.

Breakup Plan

Portuguese media entrepreneur Miguel Pais do Amaral said in a March 13 filing with the securities regulator that he was in talks with unspecified international investors about a bid for Portugal Telecom, which controls about 90 percent of the country's fixed- line, broadband and cable-TV services.

Buyout firms including Blackstone Group LP and Kohlberg Kravis Roberts & Co., both based in New York, may join Amaral's group, two people familiar with the situation said.

``We have to see what the next step by Mr. Azevedo will be,'' says Philippe Kiewiet de Jonge, who manages $480 million, including a holding in Portugal Telecom that is larger than his benchmark, at ABN Amro Asset Management in Amsterdam. ``I think he will have to go well above 10 euros, probably to the 11- to 12-euro range.''

To win support from the country's Competition Authority, Sonaecom says it will sell the company's fixed-line network or cable interests. Sonaecom plans to keep Portugal Telecom's mobile- phone unit. After the deal, Portugal Telecom would have about 50 percent of Portugal's market for fixed-line, broadband and cable-TV services after such a disposal, down from 90 percent today, Azevedo says.

Mobile Merger

Sonaecom and Portugal Telecom's TMN mobile unit together control about 66 percent of the domestic wireless market, according to Informa, a London-based research firm. Vodafone has 34 percent.

``We know that Vodafone will not make life easier for us and will probably try to move our market share down as quickly as possible,'' Azevedo says. ``Competition will be higher in mobile than it is now.''

Analysts question whether the Portuguese market offers much prospect for increased revenue. There are 116 subscriptions for every 100 residents, says Mark Newman, chief research officer at Informa. That compares with the western European average of 101 percent penetration.

``That suggests that people arbitrage their mobile phones -- using one for calls abroad and another for local use, chasing the cheapest rates,'' Newman says. ``It's a very mature marketplace, and you have to wonder how much growth there is to come.''

Azevedo's Fortune

Sonae's stock gained 54 percent in the past 12 months, closing at 1.36 euros in Lisbon on April 27, as the company's retail unit sold a venture in Brazil. Portugal's PSI-20 Index rose 32 percent in the same period, as investors bought shares of takeover targets such as Portugal Telecom and Banco BPI SA, the country's fifth- biggest bank.

Azevedo's holdings in Sonae and Sonae Industria SGPS SA are valued at $2.2 billion, according to data compiled by Bloomberg.

The Socialist government of Prime Minister Jose Socrates, which owns a special class of Portugal Telecom shares that give it the right to veto any merger, says it will defer a decision until the Competition Authority issues a report on the takeover, expected in June.

Charming politicians and regulators is an unfamiliar role for Azevedo.

In 1998, Parliament asked Azevedo to explain why the holding company for government investments bought a stake in Sonae's Brazilian retail business for $31.8 million, an amount some legislators considered excessive. He agreed to appear before a parliamentary committee if the hearing took place at 8 a.m. The committee, which normally met in the afternoon, agreed and found no evidence of favorable treatment.

`Irreverent'

``I'm a little bit irreverent,'' Azevedo says. ``You know, governments, they don't like that.''

The oldest of eight children, Azevedo was born in the northern Portugal municipality of Marco de Canavezes, sharing his birthplace with singer Carmen Miranda. After earning an engineering degree at Oporto University in 1963, he went to work as a project manager at a local textile company.

Two years later, Azevedo joined Sonae, a wood products company based in the Oporto suburb of Maia. He started as head of research and development, taking on everything from opening the mail to ordering equipment. He became chief executive officer in 1967 after upgrading outdated facilities and reversing the fortunes of the money-losing company.

Majority Stake

In the mid-1970s, Azevedo fended off attempts to nationalize Sonae after Portugal's dictatorship gave way to a military regime that took control of many companies, including a bank controlled by Sonae owner Afonso Pinto de Magalhaes, according to ``Belmiro: The Story of a Lifetime,'' an authorized biography published in Portugal in 2001.

Azevedo quit in 1977, after a new government put its representative on Sonae's board, and employees staged a four-month work slowdown in protest. The action ended when the government backed off and Azevedo regained his position.

Five years later, Pinto de Magalhaes sold Azevedo a 20 percent stake to keep him from accepting a job in Brazil. After Pinto de Magalhaes died in January 1984, his heirs sold an additional 18 percent to Azevedo, who used a 100 million-escudo (500,000-euro) loan from Lloyds Bank Plc, then one of the few overseas lenders in Portugal. He gained majority control after buying additional Sonae shares from a state-owned bank.

'70s Growth

Throughout the 1980s, Azevedo expanded Sonae's interests beyond wood products.

The Modelo Continente unit in 1986 opened Portugal's first hypermarket, its initial step toward becoming the country's biggest retailer. The company also became Iberia's biggest shopping center developer, building malls in Spain, Germany, Greece and Italy. Sonaecom teamed with France Telecom SA in 1998 to start mobile- phone operator Optimus, attracting customers from TMN and Vodafone by selling handsets at Modelo Continente stores.

``There's no one in Portugal you can compare him to,'' says Benjamin Santos, co-owner of Aveiro, Portugal-based Indasa, an industrial abrasives company and a classmate of Azevedo's at Oporto University. ``He rose by his work and his competence, not by luck or connections. He doesn't owe anyone any favors.''

Azevedo's acquisitiveness drove debt to 3.5 billion euros in 2001 and led to a 56 million-euro loss the following year, as the Sonae Industria unit invested to upgrade plants. In March 2003, Sonae's market value slipped to 498 million euros.

Brazilian Retreat

In response, Azevedo closed factories in Germany and France, and sold Sonae's stake in a Portuguese pulp-and-paper company. Last December, he abandoned Modelo Continente's 16-year investment in Brazil, selling the division and its 140 stores to Bentonville, Arkansas-based Wal-Mart Stores Inc. for $757 million.

``We lost a lot of money,'' says Azevedo, who blames competition from Brazil's underground economy for the failure. ``We came to the conclusion that it would take another 15 years for the so-called bright future Brazil was supposed to have.''

Sonae's collection of disparate assets may have damped share price gains, says Pedro Alves, who helps manage about 100 million euros at Spot Gestao Financeira in Braga, Portugal.

``It might be better for Sonae to be broken into pieces,'' says Alves, who doesn't own Sonae shares. ``Because if you want to invest in Sonae, you have to invest in all of Sonae, even if you are interested in the supermarkets or industrial interests.''

`Zig-Zag' Management

Azevedo says his management style is more American than that of his peers after business courses at Harvard University, Stanford University and the Wharton School of Business at the University of Pennsylvania.

To help train Portuguese executives who are willing to embrace change, he helped establish the Oporto School of Management at Oporto University.

Azevedo tells new Sonae employees that they shouldn't expect lifetime employment and moves managers between divisions in what he calls a ``zig-zag'' program of career development.

``I'm mad about this idea of getting education for yourself and your people,'' Azevedo says. ``I'm more a dean of a real business school, and I enjoy getting good people moving faster.''

For those that succeed, the reward may be the chance to buy one of Sonae's units.

Over the past 20 years, Azevedo has sold at least seven companies in the Sonae Capital unit to their managers, including Ibersol SGPS SA, the Portuguese operator of Pizza Hut and KFC fast- food franchises, and bottle maker Barbosa & Almeida. Sonae is considering as many as 10 of its smaller units for management buyouts, Azevedo says.

``It's good for them and it's good for the company,'' he says. ``You get a renovation effect.''

Next Generation

As son Paulo, the 40-year-old head of Sonaecom, takes a more prominent role at the company, analysts are speculating about how long Azevedo will remain in control.

Azevedo identifies Paulo, Nuno Jordao, head of Sonae's retail business, and Alvaro Portela, chairman of Sonae Imobiliaria, as possible successors, though he says no change should be expected before the end of 2007.

``The people leading the business units can be chosen without the market penalizing that choice,'' says Sonia Baldeira, an analyst at Caixa-Banco de Investment in Lisbon who has a ``hold'' rating on Sonae shares.

It's unlikely any successor will match Azevedo's reputation for taking on opponents and winning. ``Disinformation,'' a satirical TV puppet show, has created a character modeled after him and dubbed ``Mete-medo,'' or ``the one who strikes fear.''

Azevedo isn't fond of his sound-alike nickname but says it has helped him in business.

``The name doesn't fit me, but the interpretation by the public is very positive,'' he laughs. ``I don't manage by fear -- I'm not a pusher, I'm a puller.''

To contact the reporter on this story:
Jim Silver in Lisbon at jsilver@bloomberg.net