Tuning in: two years after a controversial media law, much-needed foreign cash trickles into Brazil.

Author:Kepp, Michael

Recent deals are bringing rare foreign capital into Brazil's closely held media companies, fueling speculation that international investors are poised to invade Brazil's multi-billion dollar media market, of 175 million consumers.

In July, a private equity fund managed by the Capital Group, a U.S. asset management firm, spent US$50 million to buy a 13.8% stake in Grupo Abril, Brazil's largest publisher and owner of TVA, Brazil's No. 2 pay-television operator.

And in June, Brazil's Organizacoes Globo, Latin Americas biggest media company, agreed to sell up to a 60% stake in the cable company Net Servicos, Brazil's No. 1 pay-TV operator to Telefonos de Mexico (Telmex), Mexico's No. 1 telecom company. (Although it will hold only up to 49% in a special purpose entity, by Brazilian law, which could be changed soon and allow Telmex to take control of the cable operator.) The stake is valued at between $250 million and $370 million. Telmex recently closed a deal to buy Brazilian long-distance giant Embratel for $400 million.

Congress in 2002 passed a media law that allowed for foreign corporate ownership of up to 30% of Brazil's television, radio and print properties. Industry observers at the time said that a few deep-pocketed U.S. and European media companies might move in, but no foreign media companies jumped. Hobbled by their own bad investments during the 1990s and cautious--a 30% stake means no decision-making power--they decided to think twice before investing in Brazilian media groups, virtually all of which are tightly controlled by their founding families.

Now, foreign cash is beginning to trickle in. The money is coming from private investors consultants say don't need or demand control--yet. International investors who follow will likely be non-media players, too.

One factor now attracting foreign investors is the low cost of buying into financially troubled companies. Another is the economy, which under President Luiz Inacio Lula da Silva is far more stable and more robust than it was two years ago. The economy is expected to grow 3.5% to 4% in 2004, and with that rise go ad revenues.

"Some international investors may now be willing to buy a stake in Brazilian media companies, now that those stakes are cheap, and now that the economy is on the rebound, which should boost media ad revenues," says Marcelo Kneese, a partner at Sao Paulo media financial advisor Vergent Partners. "Such investors, among them private equity firms, will...

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