4. Current Ownership Structure of Telecom
Italia’s Brazilian Wireless Assets
Ownership Structure – TIM Celular Ownership Structure – TIM Participações
TIM Brasil
TIM Brasil
ON* 100.0%
PN* 0.0% ON* 50.3%
Total 100.0% PN* 4.1%
Total 19.9%
TSU
TIM Celular
TIM Part.
ON* 100.0%
PN* 100.0% 100.0% 100.0%
Total 100.0%
TIM TIM
Maxitel TIM Sul Nordeste
*ON=Voting shares
PN=Non voting shares
5. Proposed Restructuring of TIM Celular and
TIM Participações
Proposed Merger Pro Forma Structure Post Merger
TIM Brasil TIM Brasil
Free Float ON* 81.19%
ON* 50.3% PN* 63.70%
PN* 4.1% Total 69.66%
Total 19.9%
100.0%
TIM TSU
Part
TSU 100.0% 100.0%
TIM Cel TIM Part 100.0%
TIM TIM
100.0% 100.0% 100.0% TIM Cel Nordeste Sul
100.0%
TIM TIM TIM TIM *ON=Voting shares
Maxitel Nordeste Sul Maxitel *PN=Non voting shares
6. Transaction Overview
• On January 31st, 2006, the Board of Directors of TIM Participações S.A. (“TIM Part”) and TIM
Celular S.A. (“TIM Cel”) approved the proposed transaction contemplating the merger of
shares of TIM Cel into TIM Part
• Upon completion of the transaction TIM Cel will become a wholly owned subsidiary of TIM
Part
• The merger will concentrate all shareholders at the TIM Part holding company level; there will
be no direct impact on the operating companies (TIM Sul, TIM Nordeste, TIM Cel and TIM
Maxitel) which will all be wholly owned subsidiaries of TIM Part
– Tax benefits given to TIM Nordeste will remain the same
– Net Operating Losses (“NOL”) at TIM Maxitel and TIM Cel will remain the same
• As a result of the merger all of Telecom Italia’s Brazilian wireless operations will be managed
under a single publicly traded company listed in the Bovespa and the NYSE
7. Objectives of the Transaction
• Simplify organizational and operational structure
• Grounds to maximize fiscal benefit
• Optimize the group's financial structure and management
• Concentrate all of Telecom Italia’s Brazilian wireless businesses at a single entity and become
the sole listed player with a nationwide coverage
• Create one of the largest Brazilian wireless companies in terms of market capitalization
presenting an attractive investment for shareholders
8. New Shares Issued to TIM Brasil
and Withdrawal Rights
• TIM Brasil, a wholly owned subsidiary of Telecom Italia, will receive new ON and PN shares of
TIM Part for each share that it currently owns in TIM Cel
– New ON shares (voting) and PN shares (non-voting) of TIM Part will be issued to TIM
Brasil in the same ratio of ON vs. PN shares currently at TIM Part.
– For each TIM Cel share, TIM Brasil will receive 45.8 TIM Part shares, of which 15.6 TIM
Part ON shares and 30.2 TIM Part PN shares.
• Dissident ON shareholders who own voting shares of TIM Part will have withdrawal rights
entitling them to exchange each TIM Part ON share for a cash amount corresponding to the
book value per share (withdrawal rights amount of R$ 3.1 per lot of 1,000 shares)
• PN Shareholders of TIM Part will not hold withdrawal rights since TIM Part PN shares fulfill the
necessary liquidity and dispersion legal requirements
• Current number of outstanding shares of TIM Part: 879.5 billion shares, being 299.6 billion
ON shares and 579.9 billion PN shares
• Total of shares to be issued: 1,443.0 billion, being 491.5 billion ON and 951.5 billion PN
9. Relative Valuations
• ABN AMRO and Credit Suisse were appointed by TIM Cel and TIM Part respectively to render an
independent valuation of both TIM Cel and TIM Part based on the economic value criteria
• The companies were valued as stand alone operations, without considering any potential
synergies involved with transaction
• The valuation was based on the discounted cash flow (DCF) methodology
– Base date assumed was December 31, 2005
– Based on 10-year projections (2006-2015)
• Range of discount rates (WACC):
– From 11.8% to 13.3% in nominal US Dollars (Credit Suisse)
– From 11.0% to 12.9% in nominal US Dollars (ABN AMRO) *
• Range of perpetuity growth rates:
– From 3.0% to 5.0% in nominal US Dollars (Credit Suisse)
– From 3.1% to 5.0% in nominal US Dollars (ABN AMRO) *
* Based on the nominal R$ WACC and nominal R$ perpetuity growth rate ranges calculated by ABN AMRO of 13.5% to 15.5% and 5.37% to
7.37% respectively, converted to US$ nominal terms considering the long term inflation differential between Brazil and the US of 2.3%
10. Results of the Independent Valuations
Range of exchange ratios (number of TIM Part shares to be issued for each TIM Cel
share) based on the DCF valuations of ABN AMRO and Credit Suisse:
ABN AMRO* Credit Suisse*
Low Mid High Low Mid High
44.3 46.8 49.7 42.8 44.8 47.2
Average
Low Mid High
43.6 45.8 48.5
* Exchange ratios have been rounded to the first
decimal number
11. Proposed Exchange Ratio
• The number of new shares to be issued by TIM Part to TIM Brasil has been determined based
on the exchange ratios arising from the independent valuations (“Laudos de Avaliação")
undertaken by ABN AMRO and Credit Suisse
• The Board’s of TIM Part and TIM Cel selected the exchange ratio considering the average
between the midpoints of ABN AMRO’s and Credit Suisse’s independent valuation reports
– Since both banks conducted their independent work using the same methodology and
based on the same set of information supplied by both companies’ managements, and
the average of both midpoints is within both ranges, the Boards of TIM CEL and TIM
PART have concluded that this choice best represents equitable treatment of all
shareholders
12. Next Steps
Legal requirements in order to conclude the transaction
• Submission of the proposed transaction for the review of the Brazilian Telecom Agency
(Anatel)
• Publication of the call notices for the Special Shareholders‘ Meetings of TIM Cel and TIM
Part, which shall decide on the merger
• TIM Cel’s and TIM Part’s Special Shareholders’ Meeting decision on the merger and minutes
publication
– Beginning of 30 day-term for exercise of withdrawal rights by ON shareholders
• Closing of the transaction
– Expected during the first semester of 2006
13. Transaction Timetable
Date Description
Feb - Mar Anatel review process
Mid- Publication of the call notices for the Special Shareholders Meetings
February
March 16 Special Shareholders Meetings to approve the transaction
Following Withdrawal rights exercise period for shareholders owning voting shares
30 days
14. Description of the Proposed Merger Transaction
Overview of the “New” Company
15. Combined Overview
TIM Celular *
“New TIM Participações”
75.4% Brazilian pop
67.9 million mobile users
49.4% mobile penetration
1,279 billion R$ GDP 2003
82.2% GDP area/GDP Brazil
TIM Participações *
• Only Brazilian operator with a nationwide
24.6% Brazilian pop
presence
18.3 million mobile users
40.8% mobile penetration • Second largest Brazilian player in terms of
277 billion R$ GDP 2003 number of clients and revenues
17.8% GDP area/GDP Brazil
• Number one Brazilian GSM operator in
terms of number of clients
* Data related to Regional Market
Based on 2005’s figures.
16. 2005 Combined Revenue and EBITDA1
Revenue (R$ million) EBITDA (R$ million)
Weight on Total 3
1,237 - 184 294
15% 66%
219 19%
4,440
14%
35% 8,411 1,529
1,013
53%
2,918
-
TIM Part. TIM Celular TIM Maxitel Other “New TIM Part.” TIM Part. TIM Celular TIM Maxitel Other. “New TIM Part.”
Standalone Change vs. 2004
+127 +614 +182 +6 +930
Change vs. 2004 +14% n.a. 164% n.a. 155%
+354 +1,737 +231 -164 +2,157 Ebitda Margin 2005
+14% +64% +23% n.a. +34% 35% 5% 24% n.a. 18%
Note: (1) Figures in BRGAAP. Combined data for “New TIM Part.” not audited.
17. Combined Client Base and Net Additions
Base:2005
Client Base (thousands) Net Additions (thousands)
Weight on Total
1,153
3,572
18%
18%
9,086 3,574
37% 6,584
20,171 28%
45% 54%
7,513 1,857
TIM Part. TIM Celular TIM Maxitel “New TIM Part.” TIM Part. TIM Celular TIM Maxitel “New TIM Part.”
Standalone Standalone
Market Share Change vs. 2004
41.1% 16.7% 26.4% 23.4% +33% +65% +48% +48%
% Postpaid
20.3% 20.2% 19.4% 20,1%
18. Monthly Average Revenue and MOU per User
Base:2005/BRGAAP
ARPU Blended 1 (R$) MOU (minutes)
37.1 102
34.2
31.3 30.4 91
83 85
TIM Part. TIM Celular TIM Maxitel “New TIM Part. TIM Celular TIM Maxitel “New
Standalone TIM Part.” Standalone TIM Part.”
Note: (1) Based on total net service revenue.
