425 - SEC.gov | HOME Telecom Sector Penetration Net Revenues Telecom Million Lines Telecom Net Revenues 2005 100% = US$ 32 billion1 86 66 8 35 29 23 15 46 92 38 39 20 25 31 37 39 39

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0000950123-06-012300.txt : 200610040000950123-06-012300.hdr.sgml : 2006100420061004140405ACCESSION NUMBER:0000950123-06-012300CONFORMED SUBMISSION TYPE:425PUBLIC DOCUMENT COUNT:32FILED AS OF DATE:20061004DATE AS OF CHANGE:20061004

SUBJECT COMPANY:

COMPANY DATA:COMPANY CONFORMED NAME:TELE NORTE LESTE PARTICIPACOES SACENTRAL INDEX KEY:0001066113STANDARD INDUSTRIAL CLASSIFICATION:RADIO TELEPHONE COMMUNICATIONS [4812]IRS NUMBER:000000000STATE OF INCORPORATION:D5FISCAL YEAR END:1231

FILING VALUES:FORM TYPE:425SEC ACT:1934 ActSEC FILE NUMBER:001-14487FILM NUMBER:061127738

BUSINESS ADDRESS:STREET 1:HUMBERTO DE CAMPOS, N? 425STREET 2:8? ANDARCITY:RIO DE JANEIRO - RJSTATE:D5ZIP:22641-560BUSINESS PHONE:3131-1315

MAIL ADDRESS:STREET 1:HUMBERTO DE CAMPOS, N? 425STREET 2:8? ANDARCITY:RIO DE JANEIRO - RJSTATE:D5ZIP:22641-560

FILED BY:

COMPANY DATA:COMPANY CONFORMED NAME:TELE NORTE LESTE PARTICIPACOES SACENTRAL INDEX KEY:0001066113STANDARD INDUSTRIAL CLASSIFICATION:RADIO TELEPHONE COMMUNICATIONS [4812]IRS NUMBER:000000000STATE OF INCORPORATION:D5FISCAL YEAR END:1231

FILING VALUES:FORM TYPE:425

BUSINESS ADDRESS:STREET 1:HUMBERTO DE CAMPOS, N? 425STREET 2:8? ANDARCITY:RIO DE JANEIRO - RJSTATE:D5ZIP:22641-560BUSINESS PHONE:3131-1315

MAIL ADDRESS:STREET 1:HUMBERTO DE CAMPOS, N? 425STREET 2:8? ANDARCITY:RIO DE JANEIRO - RJSTATE:D5ZIP:22641-560

4251e20825be425.htm425

425

Filedby: Tele Norte Leste Participaes S.A.
Filed Pursuant to Rule425 under the Securities Act of 1933

Subject Company: Tele Norte Leste Participaes S.A.
Registration Statement No333-133992

Telemar Corporate Restructuring

Oi Holdings

October 2006

KOI

OIOI3

We have filed a registration statement on Form F-4 (including the prospectus contained therein) with the SEC for the issuance of securities to which this communicationrelates. Before you vote or otherwise make an investment decision with respect to these securities, you should read the prospectus in that registration statement onForm F-4 and other documents we have filed with the SEC for more complete information about TmarPart and the transactions referred to below. You may get thesedocuments for free by visiting EDGAR on the SEC website at www.sec.gov or TNL's investor relations website at www.telemar.com.br/ri . Alternatively, we will arrangeto send you the prospectus contained in the registration statement on Form F-4 if you request it by sending an email to [email protected] or calling +55 21 3131-1208.

Special Note Regarding Forward Looking Information

This document includes forward-looking statements. The words ''believe'', ''may'', ''will'', ''estimate'', ''continue'', ''anticipate'', ''intend'', ''expect'' andsimilar words are intended to identify forward-looking statements. You should consider these cautionary statements together with any written or oralforward-looking statements that we may issue in the future. These forward-looking statements include, but are not limited to: (1) statements aboutthe benefits of the proposed corporate restructuring to the Company and its shareholders, including statements that the proposed restructuring willfacilitate access to capital markets, increase financing resources and increase the potential liquidity of the OiPart common shares, (2) statementsabout current conditions and future trends in our industry and (3) statements about our financial condition, results of operations, cash flows,dividends, financing plans, business strategies, operating efficiencies, budgets, competitive position, growth opportunities, benefits from newtechnology, plans and objectives of our management and other matters.

These forward-looking statements are based largely on our current beliefs and expectations about future events and financial trends affecting ourbusinesses and are subject to risks, uncertainties and assumptions, including, among other things:

competition in the Brazilian telecommunications sector;

management's expectations and estimates concerning our future financial performance, financing plans and programs;

the Brazilian government's telecommunications policies and changes or developments of the regulations of Anatel applicable to our Company;

cost and availability of financing;

general level of demand for, and changes in the market prices of, our products and services;

our ability to implement our corporate strategies in order to increase our average revenue per user;

political, regulatory and economic conditions in Brazil and the specific states in which we operate;

inflation and fluctuation in exchange rates; and

legal and administrative proceedings to which we are a party.

Any or all of our forward-looking statements in this document may turn out to be inaccurate. We have based these forward-looking statementslargely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, resultsof operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknownrisks and uncertainties. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in thisdocument may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-lookingstatements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this document. Unless required by law, weundertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. Youshould, however, review the factors and risks we describe in the reports we may file from time to time with the SEC after the date of this document.

Sector and Company Overview

A leading telecommunications services provider in Brazil, offering an integratedcommunications product package that includes traditional fixed-line, mobile,broadband internet and other services:

The incumbent fixed-line telecommunications services provider in Region I,with 26 million customers (2005) and a stable revenue stream supported bythe fixed-line business

Comprehensive product portfolio allows for bundling of services and cross-selling

Focus and strategy based on market segmentation

Established network capability

Professional management team

Economic Value Added Measurement System - EVA based compensationprogram for 7,600 employees

Solid Financial Position

Balance between slower growth traditional services with stable revenues andnew services which provide growth

Dedication to increasing profitability in growing mobile business

Telemar at a Glance

Operating Highlights

Fixed-Lines in Service (million of lines)

Mobile Subscribers (million of subs)

Oi Internet - Launched in Feb 2005

Over 250,000 paying broadbandsubscribers

1.75 million registered email accounts

ADSL Subscribers (thousands of subs) - Launched in 2002

Source: Telemar

Brazilian Telecom Sector Evolution

Seven different fixed-line companies:Telemar, BrasilTelecom, Telefonica,Embratel, CTBC,Sercomtel and GVT

Eight different wirelesscompanies: Oi, Vivo,TIM, Claro, Telemig /Amazonia, Brt GSM,CTBC and Sercomtel

State Monopoly

(up to mid-98)

Telebras System

One state-ownedholding company

26 state companiesproviding fixed andmobile services

Transition

(mid-98 to mid-02)

Full Competition

Duopolies in fixed-line businesses(Incumbents andmirror companies)

Duopolies in mobileservices (Bands Aand B)

Four players in intra-state and inter-regional longdistance

Anticipation ofANATEL'suniversalization goals

Regionalincumbents startedinternational longdistance and inter-regional domesticlong distance

Many mobilecompetitors in eachmaket

Over the last eight years, Brazilian telecom sector has gone from monopoly to consolidation

Consolidation

Region I

Region I covers an area of 5.4 million square kilometers, which represents approximately64% of the country's total area and generates approximately 41% of Brazil's gross domesticproduct.

Region I

Region II

Region III

The population of Region I is approximately 100 million, which represents55% of the total population of Brazil.

Source: IBGE

Main Telecom Groups in Brazil

Brasil Telecom

25%

25%

TMAR

38%

38%

Region

I

Region

II

Oi (GSM)

13%

13%

3%

3%

BRT GSM

TIM (TDMA/GSM)

24%

24%

Embratel (LD)

Telefonica

Vivo (CDMA)

Claro (TDMA/GSM)

32%

32%

31%

31%

Region

I

(Mobile

only

)

(Mobile

only

)

Brasil Telecom

25%

25%

TMAR

38%

38%

Region

I

Region

I

Region

II

Region

II

Oi (GSM)

13%

13%

3%

3%

BRT GSM

TIM (TDMA/GSM)

24%

24%

Embratel (LD)

Telefonica

Vivo (CDMA)

Claro (TDMA/GSM)

32%

32%

31%

31%

Region

IV

Region

IV

23%

23%

Region

III

TELEMAR

Brasil Telecom

TIM

Telefonica

Telmex / AMX

(TDMA/GSM)

5%

5%

Telemig / Tele Norte Cel

Region

II

Region

I

(Mobile

only

)

(Mobile

only

)

National Market Share of Fixed Lines in Service

National Market Share of Mobile Subscribers

Source: Company Reports

Note:

As of June, 2006

With several players competing in each state, particularly in the mobile segment, webelieve the Brazilian telecom sector is likely to experience consolidation

Brazilian Telecom Sector

Penetration

Net Revenues

Telecom

Million Lines

Telecom Net Revenues

2005

100% = US$ 32 billion1

86

66

8

35

29

23

15

46

92

38

39

20

25

31

37

39

39

39

0

10

20

30

40

50

60

70

80

90

100

1998

1999

2000

2001

2002

2003

2004

2005

Jun-

06

Mobile

Fixed

Note:

1 Considering Tele Norte Leste, Brasil Telecom, Telesp Fixed, Embratel, Tim Brasil, Vivo, Claro, Telemig and Tele Norte Celular.

Competition

Major Players

Source: Anatel


Local

LD

Mobile

Data/

Broadband

u

u

u

u

u

u

u

u

u

u

u

u

u

u

u

u

u


Expansion

Stability

(1) Residential lines per household = 54% (Dec/05)

Source: Anatel and Teleco

Fixed-Lines in Service (million of lines)

Mobile Subscribers (million of subs)

Expansion

Moderate Growth

Telecom Sector Outlook

The industry is approaching maturity. Our business strategy is shifting focus to growthalternatives while maintaining the strong revenue generation of our low-growth fixed-linebussiness

Source: Anatel and Teleco

BCI

Safra

Players in 2000

Today

Mobile Business

Consolidation has already begun

3 or 4 operators perregion1

Strong competition

High costs retainingclients

High subsidies inhandsets andmarketing costs

Pressure on margins

Mobile Business

More consolidation is expected

Note:

1 Source: Anatel

1

Largest Integrated Telco Operator in Latin America

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?

?


Note:

As of June 30st, 2006

1 Excluding Claro (AMX's Brazilian operations)

Integrated telecom companies

Telemar offers the broadest range of telecom services to clients in Latin America

?

?

?

(Telesp

Fixed)

?

Country

Fixed line

Mobile

Internet / Boadband

Fixed lines in service (million)

14.5

12.3

9.4

- -

- -

- -

18.6

4.0

3.5

2.4

- -

Mobile subscribers (million)

12.0

- -

2.8

28.5

22.3

20.9

- -

6.9

6.6

- -

88.9

ADSL subscribers ('000)

970

1,378

1,155

- -

- -

- -

1,374

300

362

419

- -

Oi as Major Mobile Player

Oi has successfully achieved the #1 position in Region I

Source: Company reports and Anatel

Note:

1 Includes other groups: Telemig, Tele Norte Celular and CTBC.

Other1

Mobile market share in Region I

+

27.8 %

7.8%

0.7%

6.1%

1.2%

1.9%

1.7%

22.2%

27.9%

2.7%

Integrated Strategy: Value Segmentation

Integrated view by household1 Source: CompanyNote:1 Telemar customer base breakdown, i.e., 1.2% of all customers are clients for fixed-line, long distance, ADSL and mobile, while 27,9% of all customers only have the fixed line service.

Services

% Household

Group 1

1.2%

Group 3

0.7%

Group 5

6.1%

Group 2

Group 4

1.7%

Group 7

22.2%

Group 6

7.8%

Group 9

27.8%

Group 8

27.9%

Group 10

2.7%

Group

Fixed

Velox

LD

Oi

1.9%

Prepaid Plans

Pre paid subscribers can use their credits on:

Pre paid phone pre paid mobile prices

Public phones

Regular fixed line

lower fixedline prices

Convergence as Significant Marketing Strategy: "Oi Total Card"

"Recarga Automatica" (Automatic Recharge)

"Saldo Unico" (Single Account Balance)

Client Base: 478,000

CAGR 2Q04-2Q06: 161%

Avg. monthly recharge: R$18

Client Base: 784,000

CAGR Sep-Aug: 480%

"Oi Cartao Total" focuses on the low end segment, combining low monthly fees with a broadrange of services Source: Company

2005

2006

Convergence as Significant Marketing Strategy : "Oi Total Account"

"Oi Total Account" focuses on the high end segment

Postpaid Plans

Main Results

Adherence by Plans1 Source: CompanyNote:1 Based on number of fixed line subscribers.2 Weighted average including Oi, Vivo (recurring), Tim, Telemig, Tele Norte Celular, BRT GSM and Claro.3 Average Revenue per User.

More than 60,000 fixed-line and 100,000mobile subscribers

Client protection against competitors (lowerchurn 2Q06 Oi: 26% Market average2 30%)

ARPU3 increase to R$31

Revenue increase for approximately 70% ofclients after signing up for "Oi Conta Total"

R$149 - limited Internet dial100min Oi

R$229 - Velox 1M - 200 min Oi

R$299 - Velox 1M - 500 min

R$399 - Velox 1M - 1000 min Oi

Oi Conta Total 1:

Monthly fee for the fixed-line

Unlimited local calls

Unlimited internet dial-upaccess

100 minutes to use onmobile calls, domestic longdistance call or fixed tomobile calls

Oi Conta Total 4:

Monthly fee for the fixed-line

Unlimited local calls

1 mega ADSL

1,000 minutes to use onmobile calls, domestic longdistance call or fixed tomobile calls

Unique Value Creation Platform

Convergence

New products and services

Integration of devices

Cost reductions

Convenience for customers

Integration of offers

Price reductions

One stop shopping

Consolidation

Access to new regions andcustomers bases

Less competition

Economies of scale

Synergies

Access to financial

leverage

Current Situation

Current Situation

Source: Company reports and Economatica

The company has always traded at low multiples

Daily Implied EV/ LTM EBITDA (TNL PN)

Average = 3.2x

Multiple = 2.9x

04/17:Restructuringannouncement

Current Situation

Complicated shareholders' structure

2 traded companies

6 different share classes

Controlling shareholder

No clear dividend policy

Lack of high Corporate Governance standards

No tag-along for PN shares

The market has enumerated several reason for this discount

Lack of financial flexibility

Options posed by the Restructuring

Basic options

Shareholders will be called to decide the future of Telemar

Management would like to ensure that shareholders have a complete picture of theRestructuring before making a decision

Binary process

Vote in favor of the Restructuring as proposed by management and tender its TNE shares inexchange into OiPart

OR

Keep status quo by voting against the Restructuring and keep its current TNE shares

Snapshot of the Restructuring

Source: Company

Note:

1 Sum of average daily trading of TNE (ADR), TNLP4, TNLP3, TMAR3, TMAR5 and TMAR6

2 Company's expectation

3 Dividends, interest on capital, capital reduction, shares buyback and others forms of cash distribution

New Company

Status Quo

1 share = 1 vote

Decision power

Cash distribution

No cash distribution policy

Clear distribution policy3

Board ofDirectors

Determined by control group

Independent representatives

Liquidity

US$65 mm1

> US$110 mm2

Tag-along

ON = 80%; PN = N/A

100%

Free Float

82%

100%

Shares Trading

TNLP4 (TNE), TNLP3,TMAR5, TMAR3 and TMAR6

OIOI3 (KOI)

Capital Structure

Inefficient (0.9 x Net Debt/EBITDA)

Efficient (up to 1.8x Net Debt/EBITDA)

Controlling group

ON (TMAR3) 97.4%

PN (TMAR5) 69.4%

Total 81.9%

Simplified Corporate Structure

Notes:

1 Telemar Participacoes S.A. (not publicly traded)

2 Tele Norte Leste Participacoes S.A. (TNLP4/TNE and TNLP3)

3 Telemar Norte Leste S.A. (TMAR3, TMAR5 and TMAR6)

TNE(2)

TMAR (3)

(including Oi)

Free Float

TmarPart(1)

Free Float

ControllingShareholders

TNE

TMAR

(including Oi)

OiPart

Free Float

(Novo Mercado/ NYSE)

100%

100%

100%

ON (TNLP3) 53.8%

Total 17.9%

ON (TMAR3) 2.6%

PNA (TMAR5) 30.6%PNB (TMAR6) 100%

Total 18.1%

ON (TNLP3) 46.2%

PN (TNLP4) 100%

Total 82.1%

Only a single class of shares, rather than today's voting

and non-voting stock spread out in six different share classes

After Stock Swap

Prior to Corporate Restructuring

TNE

TMAR

(including Oi)

OiPart

Free Float

(Novo Mercado / NYSE)

100%

100%

100%

After Remainder of

Corporate Restructuring

Free Float

ON (TMAR3) 97.4%

PN (TMAR5) 69.4%

Total 81.9%

ON (TMAR3) 2.6%

PNA (TMAR5) 30.6%PNB (TMAR6) 100%

Total 18.1%

Benefits of the Restructuring with no Economic Losses

Scale: LargestIntegratedOperator in LatAm

No EconomicLosses

World ClassCorporateGovernance

Growth Potential:Stock asAcquisitionCurrency

Superior CashDistribution Yield

Lower Costs:SimplifiedCorporateStructure

New Company will unlock value for all shareholders and should trade at premium to peers

Re-rating:Unlocking Value forAll Shareholders

High Liquidity

100% Free Float

Economic Stake post Restructuring

Economic Stake pre Restructuring

No Economic Loss

At 4.0x EV/EBITDA 07E for the new OiPart shares TNL PNs experience no economicloss

Source: Economatica and Market Consensus

Note:

Share prices as of September 14, 2006. Market cap considering the prices of each class of shares, including minority interest in TMAR and TNE's consolidated net debt of R$6,089m

Assuming the breakeven multiple of PN shares and TmarPart's consolidated net debt of R$ 6,354 million

Based on market consensus EBITDA 07E of R$6,654 million

R$7,288 MM

R$7,288 MM

Current Market Cap of R$17,445 million

(3.5x EV/EBITDA 07E)1,3

Market Cap After Restructuring of R$20,081 million

(4.0x EV/EBITDA 07E)2,3

54.6% of share capital

TNL PN

36.3% of share capital

TNL PN

8.2x

6.0x

5.9x

5.7x

4.0x

2.8x

7.2x

7.1x

6.5x

5.9x

5.7x

5.6x

5.4x

4.9x

4.8x

4.4x

3.7x

3.5x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

Eircom

Telefonica

Telstra

Cesky

OiPart

Brasil Telecom

(BRTP)

Qwest

Bell South

Portugal

Telecom

Telecom Italia

France Telecom

AT&T (SBC)

Verizon (MCI)

Deutsche

Telekom

Telmex

Telesp

China Telecom

Telemar (TNE)

Re-rating @ 4.0x EV/EBITDA 07E: Comparables

Source: Bloomberg, Wall Street consensus and publicly available information

Notes

As of September 14, 2006

Not pro forma for AT&T / SBC acquisition. Represents Bell South stand alone.

Simple average. Excluding OiPart and Brasil Telecom

Simple average. Excluding Telemar (TNE)

Assumes trading at breakeven multiple of PN shares and TmarPart consolidated net debt of R$ 6,354 million.

Despite being the largest integrated telco in LatAm, with balanced cash flow and growthopportunities in mobile and broadband, Telemar has been trading at a discount to its peers

EV/EBITDA 07E1

Average3: 6.4x

Average4: 5.6x

Integrated

(Ireland)

(Spain)

(Australia)

(Czech Republic)

(Brazil)

(Brazil)

(USA)

(USA)

(Portugal)

(Italy)

(France)

(USA)

(USA)

(Germany)

(Mexico)

(Brazil)

(China)

(Brazil)

Re-rated5

Current -

2

Cash Distribution Yield 2007E1 vs EV/EBITDA 07E1

Re-rating @ 4.0x EV/EBITDA 07E: Cash Distribution Policy

Source: Bloomberg, Wall Street consensus and publicly available information

Notes

As of September 14, 2006.

Assuming dividend paid in 2005 (R$ 785 million). Current situation.

Assuming re-rating to 4.0x EV/EBITDA. Considering the new cash distribution policy (R$ 3 billion), and EV of R$ 20 billion.

Assuming that the company will be traded at 4.5x and considering the new cash distribution policy the yield will be in a range of 12%/13%.

The new profile after the Restructuring should lead to an increase in company tradingmultiples

Potential upside if OiPart trades at 9%cash distribution yield

No Economic Loss for TNL PN and TNE ADR

Potential Upside

Telesp

Telmex

Brasil Telecom

OiPart

3

Telemar (TNE)

2

OiPart

4

0.0%

5.0%

10.0%

15.0%

20.0%

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

5.5x

Superior Cash Distribuition Yield1

Future Cash Distribution Policy

Current Cash Distribution Policy

Historic Cash Distribution

Lack of Control Group would allow the Company touse stock as an acquisition currency freeing up cashfor distribution to shareholders

Proposed distribution for the next two years: R$ 3.0billion annually

Thereafter, cash distributions subject to a minimum of80% of free cash flow available to shareholders

Clear and predictable cash flows to shareholders

Optimized capital structure

Minority shareholders do not have influence oncompany's cash management - controllingshareholders define dividends payments and cashusage

Irregular historic dividend flow

No clearly defined dividend policy

Inefficient capital structure

Note

1 Dividends, interest on capital, capital reduction, shares buyback and others forms of cash distribution

500

1,000

1,500

R$ mm

Dividends

Interest on Capital

Shares Buyback

500

2002

850

300

2001

670

39

TNL TMAR

709

342

458

2003

130

870

23

800

1,023

1,000

100

248

2004

590

760

102

1,348

1,452

212

71

573

2005

984

58

116

856

1,158

TNL TMAR

TNL TMAR

TNL TMAR

TNL TMAR

- -

Structural Enhancement of Corporate Governance

Establishment of a truly public corporation in the "NovoMercado" (no control group)

Cancel the current shareholders' agreement

Highest Corporate Governance Standerds

Board of Directors comprised of at least 11 members,

Majority independent

Extension of voting rights (one share = one vote) and100% tag along rights to all shareholders

Formal definition of a "cash distribution policy"

Better alignment of shareholders and management:management compensation linked to share price andpartially paid in equity

10% voting power limitation per shareholder, regardlessof ownership stake

Mandatory tender offer for all shares in case of anacquisition of a stake superior to 19.9% of total capital

OiPart will comply with the strictest Brazilian rules on corporate governance, which benefitsinvestors through transparency and dispersion of control

Note

Stakes after Restructuring

Based on announced exchange ratios and shareholders as of August 31,2006 (Source: Banco do Brasil). ADR shareholders as of June 30, 2006

(Source: BoNY)

Assuming 100% migration of TMAR shares to OiPart

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begin 644 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425 - SEC.gov | HOME Telecom Sector Penetration Net Revenues Telecom Million Lines Telecom Net Revenues 2005 100% = US$ 32 billion1 86 66 8 35 29 23 15 46 92 38 39 20 25 31 37 39 39