updated 3/8/2004 8:14:15 AM ET 2004-03-08T13:14:15

BellSouth Corp. agreed to sell its stake in 10 Latin American operations to a wireless unit of Spanish telecommunications giant Telefonica SA for about $4.2 billion in cash and an additional $1.5 billion in debt.

BellSouth, said it expects to record a gain from the sale to Telefonica Moviles in 2004. Meanwhile, Telefonica expects the deal to immediately add to earnings but doesn't expect any changes in dividend.

In a statement Monday, BellSouth said the purchase price is based on a total enterprise value of $5.85 billion for the interests changing hands. Combined revenue for the 10 Latin American companies was $2.5 billion in 2003.

Telefonica Moviles will acquire 100 percent of BellSouth's stakes in its operators in Argentina, Chile, Peru, Venezuela, Colombia, Ecuador, Uruguay, Guatemala, Nicaragua and Panama, making it the only cellular operator in all the key Latin American markets.

As reported earlier by The Wall Street Journal, Telefonica will become the largest wireless operator in Latin America following the deal. Telefonica will add 10.5 million customers and six countries to its portfolio. Total customer base will be 62.5 million after the deal, Telefonica said in a separate release.

Telefonica has so far invested about $47 billion in the seven Latin American countries it currently serves.

On Thursday, BellSouth confirmed it had been shopping its Latin American interests to potential buyers. The company's Latin American operating revenue was $2.29 billion in 2003, which contributed about $161 million to net income. Total 2003 revenue was $22.6 billion, with net income at $3.9 billion.

BellSouth said the deal improves its flexibility and allows the company to focus on its domestic business.

BellSouth expects a gain of about $1.9 billion from the deal based on current book value. Thomson First Call projects 2004 earnings of $2.11 a share based on a survey of 39 analysts. In 2003, the company also earned $2.11 a share.

Telefonica expects the deal to add to cash flow per share, in addition to earnings. Thomson First Call projects 2004 earnings of 45 cents a share based on a survey of 28 analysts.

BellSouth expects the deal to be completed in stages as it satisfies closing conditions, with the final close in the second half.

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