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In February 2006, Sonae presented a hostile takeover offer for 100% of Portugal Telecom’s
(PT) outstanding shares. If it was accepted, it would have been the largest ever business deal
in Portugal.
Although the offer was rejected, it changed the Portuguese telecommunications industry by
leading to the separation of PT and Portugal Telecom Multimedia (PTM) via spin-off.
In this thesis I examine the motivations for this spin-off transaction and its implications on
both firm’s capital structure decisions.
By comparing each firm debt level (implicit debt level) with the one that would minimize
their cost of capital (optimal debt level), derived via WACC minimization, I conclude that
after the spin-off, the capital allocation efficiency worsened significantly.
Furthermore I argue that in both PT and PTM the deterioration was a direct consequence of
the spin-off. As such, my findings contrast with previous studies that suggest that capital
allocation efficiency improves, or at least remains unchanged, following a spin-off.