BellSouth invests $25m in StarMedia

BellSouth said yesterday it purchased shares totaling $25 million in StarMedia Network, a U.S.-based Internet media company that targets Spanish- and Portuguese-speaking users.

The five-year exclusive deal combines StarMedia’s multi-access portal (MAP) platform and 35 million users with the U.S. local telephone giant’s 12 million-user customer base and telecom infrastructure in Latin America.

The pact creates a co-branded MAP portal that allows BellSouth’s 12 million Latin American customers to utilize a common platform and access the Web from any of its 11 Latin American countries via mobile handsets, a BellSouth spokesman said.

“We’re the dominant wireless player in all of Latin America and we wanted our customers to have that wireless Web experience,” he said.

The deal also allows both companies to capitalize on Latin America’s burgeoning wireless market, which Jupiter Research projects will jump from 65 million users last year to 221 million in 2005.

Atlanta-based BellSouth paid $2.55 per share in the transaction and also received warrants to purchase an additional 4.5 million shares after 12 months, priced in 1.5 million share increments. The first 1.5 million shares are fixed at $4.55 per share, the second at $6.55 and the third at $8.55.

In addition to BellSouth’s stake – which represents an 11% equity interest in the company – StarMedia received an additional $5 million boost from Primedia and longtime financial backer JP Morgan Partners, adding $6 million.

A spokesman said BellSouth was in a “wait and see” mode in determining whether to exercise the warrants.

For StarMedia, the $36 million payday comes none to soon, as the company has taken the same knocks as other Internet service providers. The cash infusion should help StarMedia survive as it fights to reach break-even by late this year or early next year.

“By joining forces with BellSouth, we are able to expand our initial investment with significant capital,” said Fernando Espuelas, chairman and CEO of StarMedia in a statement.

In late day Nasdaq trading, shares of StarMedia were up 38% to $2.77.