GTE to buy majority stake in PRTC: Deal to be largest telco privatization in U.S. history

After months of secret negotiations, the Puerto Rican government finally has clinched a deal to sell state-owned Puerto Rico Telephone Co.

Under the May 27 agreement-which marks the largest telco privatization in U.S. history-GTE agreed to pay $375 million for 50% plus one share of PRTC. Total proceeds to the Puerto Rican government will be nearly $1.9 billion, including $1.5 billion in a special dividend paid by PRTC to the island's regulatory body, the Puerto Rico Telephone Authority.

Banco Popular agreed to buy 5% of PRTC immediately after the sale, which will reduce GTE's ownership to 45%. PRTC's 7000 employees-many of whom initially opposed the privatization-will retain a 3% interest through an employee stock ownership plan, and the Government Development Bank will own 47%. Puerto Rico's Commonwealth government has granted GTE a three-year option to acquire an additional 15% of PRTC.

Spain's Telefonica-the only other serious bidder-reportedly pulled out a few weeks ago because it wasn't happy with the government's terms of sale.

With 1.3 million lines, more than 155,000 cellular subscribers and more than 237,000 paging customers, PRTC is the 12th largest telco in the United States. In 1997, net income was $242.2 million on operating revenues of $1.2 billion. To comply with a recent FCC order, PRTC will place its cellular and paging operations in a separate subsidiary.

The privatization is part of pro-statehood Gov. Pedro Rossello's overall economic reform package unveiled in 1994, said GDB President Marcos Rodriguez-Ema.

"Puerto Rico is a nice middle ground between our operations in the Dominican Republic and Venezuela and our domestic U.S. operations in that it has characteristics of both," said a GTE spokesman.

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