EX-99.1 2 dex991.htm REVISED VALUATION REPORT Revised Valuation Report
Corporate Finance.  May 1, 2006.
Valuation Report pursuant to CVM
Instruction Number
361*
*(Free English Translation of Portuguese Original)
Embratel Participações
S.A.
Version prepared exclusively in order to comply with (i) the requirements
formulated in items 2.2 and 2.3 of Letter CVM/SRE/GER-1/Nº1225/2006, of June
8, 2006, (ii) Letter CVM/SRE/GER-1/Nº1480/2006, of July 18, 2006, of the
Comissão
de Valores Mobiliários
–
CVM and (iii) the requirements formulated
in item 2.1 of Letter CVM/SRE/GER-1/Nº1907/2006, of August 25, 2006. This
version does not constitute an update, revision or correction of
the Valuation
prepared by Banco
ABN AMRO S.A. on May 1   , 2006
Exhibit 99.1
st

2
Important notice
03
1
Executive summary
12
2
Financial advisor information
19
3
Description
of
Embrapar
and
Net
29
4
Valuation by average weighted price of shares
40
5
Valuation by value of shareholders’
equity per share
45
6
Financial-economic valuation of Embrapar
47
a
Methodology
48
b
Valuation of Embrapar (excluding stock ownership in Net)
62
c
Valuation of stock ownership in Net
70
d
Valuation of Embrapar (including stock ownership in Net)
74
7
Summary
of
valuation
of
Embrapar
shares 
77
8
Glossary
80
Table of contents

3
Important Notice
•
Banco
ABN AMRO Real S.A. (“ABN AMRO”) was retained by TELÉFONOS DE MÉXICO S.A. DE C.V. (“Offeror”), the controlling
shareholder
of
EMBRATEL
PARTICIPAÇÕES
S.A.
(“Embrapar”
or
the
“Company”),
to
render
an
economic-financial
valuation
(“Valuation”)
of EMBRATEL within the context of a public tender offering for acquisition of shares for cancellation of Company´s registration as a
publiccompany,
in
accordance
with
art.
4
§
4
of
Law
6.404/76,
as
amended,
and
of
Instruction
No.
361,
dated
March
5,
2002,
of
the
Comissão
de
Valores Mobiliários
–
CVM  (the “Offering”).
•
The Valuation of the Company, subject to the disclaimers listed below, includes a valuation (i) of its direct and indirect subsidiaries, including
Embratel
S.A.
(“Embratel”),
Vesper
São
Paulo
S.A.
and
Vesper
S.A.
(together,
“Vesper”),
Telmex
do
Brasil
Ltda.
(“TDB”),
Star
One
S.A
(“Star One”)
and
Primesys
Soluções
Empresariais
S.A.
(“Primesys”),
hereinafter
collectively
referred
to
as
“Subsidiaries”,
and
(ii)
of
its
affiliated
companies,
GB
Empreendimentos
e
Participações
S.A.
(“GB Empreendimentos”) and
Net
Serviços
de
Comunicação
S.A.
(“Net”),
hereinafter collectively referred to as “Affiliates”.
•
The
Valuation
is
the
intellectual
property
of
ABN
AMRO
and
was
prepared
by
ABN
AMRO
exclusively
pursuant
to
art.
4º
§
4º
of
Law
6.404/76,
as
amended,
and
for
no
other
purposes.
Furthermore,
this
Valuation
may
be
used
by
the
Offeror
within
the
framework
of
a
voluntary
offer
to
the
acquisition
of
Embrapar
shares,
according
to
the
provisions
set
forth
in
paragraph
1,
article
31,
instruction
no.
361,
as
the
Offeror
is
entitled
in
the
terms
of
letter
CVM/SRE/GER-1/Nº1480/2006
of
July
18,
2006
of
Comissão
de
Valores
Mobiliários
("CVM").
The
Valuation
must
not
be
used
by
third
parties
or
for
any
other
purposes
and
may
not
be
disclosed
or
submitted
to
third
parties,
or
distributed,
reproduced or used for any other purpose without prior written consent from ABN AMRO, except for the disclosure of the Valuation, in its
entirety,
by
the
Offeror
for
the
purposes
of
the
Offering
and
exclusively
in
order
to
comply
with
applicable
legal
and
regulatory
requirements
including its full disclosure to the CVM and to the U.S. Securities and Exchange Commission (“SEC”) pursuant to applicable regulations. The
Valuation was prepared exclusively in Portuguese, and in the case that it is translated to another language, the Portuguese version shall
always prevail for all purposes.
•
ABN
AMRO
did
not
make
and
will
not
make
any
recommendation,
nor
will
it
express
any
explicit
or
implicit
opinion
with
respect
to
the
terms
and conditions of the Offering.
•
The Valuation is based on data from March 31, 2006.

4
6.
The Company and its Subsidiaries were valued by discounted cash flow methodology, observing what is outlined in paragraph 7 below. To
calculate the equity value of the Company, the following criteria were adopted: (i) using Financial Statements (as defined below) dated as of
March 31, 2006, net debt, net contingencies, accrued liabilities, dividends and interest on accrued capital stock (“Net Indebtedness”) were
subtracted
from
the
financial-economic
total
value
(enterprise
value)
of
the
Company
and
its
Subsidiaries;
(ii)
GB
Empreendimentos
was
valued
based
on
the
economic
value
of
its
participation
in
Net,
and
(iii)
Net
Indebtedness
of
GB
Empreendimentos
was
discounted
from
its
enterprise value. 
7.
For purposes of the Valuation of the Affiliates of the Company, ABN AMRO used the market value of Net calculated using the weighted
average
price
of
the
preferred
shares
issued
by
Net
on
the
Bolsa
de
Valores
de
São
Paulo
–
BOVESPA
during
the
period
of
90
(ninety)
days
before April 29, 2006.
8.
The
Company,
its
Subsidiaries
and
Affiliates
were
valued
as
independent,
“stand
alone”
operations,
and
the
subsequent
success
or
failure
of
the
Offering
was
not
considered
in
the
results
of
the
Valuation.
ABN
AMRO
does
not
express
any
opinion
about
any
effect
on
the
Company
that
could
potentially
be
generated
from
the
consummation
of
the
Offering.
9.
The
Valuation
took
the
following
financial
statements
provided
by
the
Company:
(i)
annual
fiscal
year
financial
statements
as
of
December
31,
2005 and quarterly financial statements as of March 31, 2006 of the Company, respectively, audited and revised by Ernst & Young Auditores
Independentes
S.S. (“Ernst & Young”); (ii) unaudited
or revised, tentative fiscal year balance sheets as at December 31,
2005 and from the
quarter ending as of March 31, 2006 of GB Empreendimentos; (iii) annual fiscal year financial statements as of December 31, 2005 and
quarterly
financial
statements
as
of
March
31,
2006
of
Embratel,
respectively
audited
and
revised
by
Ernst
&
Young;
and
(iv)
annual
fiscal
year
financial
statements
as
of
December
31,
2005
and
quarterly
statements
as
of
March
31,
2006
of
Star
One,
respectively
audited
and
revised
by
Ernst & Young (hereinafter collectively referred to as “Financial Statements”).
Important
Notice (cont.)

5
10.
The
Valuation
was
conducted
by
ABN
AMRO
based
on
information
that
was
provided
by
the
Offeror
and/or
by
the
Company
or
discussed
with
representatives
from
the
Offeror
and/or
of
the
Company
who
were
referred
to
ABN
AMRO
by
the
Offeror
(“Designated
Representatives”)
as
well as other available public information in addition to projections, estimates and analyses derived by ABN AMRO, based upon its expertise
and experience. Estimates and projections that were provided to ABN AMRO or discussed with ABN AMRO, especially those whose occurrence
depends upon future or uncertain events (including projections of earnings, expenses, investments, operating income or net income), were
based on the opinion of the Designated Representatives with regard to these events.
11.
ABN AMRO based its Valuation upon, among other things, the following information or documents that were provided to ABN AMRO up to
April
28,
2006:
(i)
public
information
about
the
industry
of
the
Subsidiaries
and
Affiliates
of
the
Company;
(ii)
public
information
about
the
macroeconomic
parameters
where
the
Company,
its
Subsidiaries
and
Affiliates
have
a
relevant
presence;
(iii)
business
plans
from
the
Company’s Subsidiaries for the period from 2006 to 2015 that were developed and approved by their respective management; (iv) historical
financial and operating information of the Company, its Subsidiaries and Affiliates; (v) value of Net Indebtedness of the Company and its
Subsidiaries,
and
of
GB
Empreendimentos,
and
equity
participation
interests
of
the
Company
and
its
Subsidiaries
and
of
GB
Empreendimentos
and (vi) discussions with the Designated Representatives regarding past performance of and expectations for the Company’s and its
Subsidiaries' future businesses.
12.
In preparing the Valuation, ABN AMRO reviewed other studies and financial and market analyses and took into consideration other factors it
deemed to be necessary, including the assessment of economic, monetary and market conditions.
13.
In
connection
with
the
Valuation
of
Net,
ABN
AMRO
requested
Net’s
business
plan
from
the
Offeror
and
was
informed
by
the
Offeror
and
by the
Company that they did not have access to a management-approved business plan for Net that reflects its current and future financial,
operational
and
commercial
situation,
and
that
they
did
not
have
either
a
budget
for
the
year
2006,
nor
any
other
analyses,
studies
or
projects
after January 1, 2006.  ABN AMRO did not have access to representatives from Net for discussion of their prospects for future performance,
estimates and projections. For the purposes of the Valuation of Net, ABN AMRO exclusively used the methodology described in paragraph 7
above.
Important
Notice (cont.)

6
14.
Financial
Statements,
public
information,
estimates,
projections,
business
plans,
budgets,
discussions
and
all
other
information
referred
to
in
paragraphs 9 to 14 above and in this paragraph 13, such as public market information about volumes and trading prices of shares issued by
Net are hereinafter collectively designated as “Information”.
15.
The preparation of economic/financial valuations is a complex process that involves subjective judgment and is not susceptible to a partial
analysis or brief description. ABN AMRO did not attribute specific importance to certain factors considered in the Valuation, but, on the
contrary,
undertook
a
qualitative
analysis
of
the
importance
and
relevance
of
all
factors
considered
herein.
As
such,
the
Valuation
must
be
analyzed as a whole, and the analysis of selected parts, summaries or specific aspects of the Valuation without knowledge and analysis of the
Valuation
in
its
entirety
could
result
in
an
incomplete
or
incorrect
understanding
of
the
analysis
undertaken
by
ABN
AMRO
and
of
the
conclusions contained in the Valuation.
16.
Information on the demographics, macroeconomic scenario, regulations, the telecommunications market in Brazil and the BOVESPA stock
market
mentioned
in
the
Valuation
were
taken
from,
among
others,
recognized,
reliable
public
sources
(trade
associations,
government
organizations
and
specialized
publications)
such
as
Instituto
Brasileiro
de
Geografia
e
Estatística
–
IBGE
(Brazilian
Institute
of
Geography
and
Statistics),
Agência
Nacional
de
Telecomunicações
–
ANATEL
(National
Telecommunications
Agency),
Banco
Central
do
Brasil
(Central
Bank
of Brazil), Comissão
de Valores
Mobiliários
–
CVM
(Securities and Exchange Commission), Bloomberg, Economática, Global Investment
Return Yearbook 2006 (ABN AMRO and London Business School) and the ABN AMRO Economic Department. 
17.
Based
on
the
assertions
from
the
Designated
Representatives,
ABN
AMRO
made
the
following
assumptions:
that
(i)
the
financial
projections
provided
reflect
the
best
estimates
for
the
period
in
which
they
were
provided
as
well
as
the
best
judgment
of
the
management
from
the
Company and its Subsidiaries with regard to expected future performance of the Company and its Subsidiaries and (ii) the estimates and
projections
that
were
provided
to
ABN
AMRO
or
discussed
among
ABN
AMRO
and
the
Company,
especially
those
whose
occurrence
depends
upon future or uncertain events (including projected earnings, expenses, investments, operational profit or net profit) were based on the best
judgment of the management of the Company and its Subsidiaries.
Important
Notice (cont.)

7
18.
Estimates and projections contained in this Valuation are intrinsically subject to uncertainties and various events or factors that are beyond the
control of the Offeror, Company, its Subsidiaries as well as ABN AMRO, especially those whose occurrence depends upon future or uncertain
events.
There
is
no
guarantee
that
the
estimates
and
projections
used
in
the
Valuation
will
be
realized.
Actual
future
results
could
significantly
diverge
from
those
suggested
in
the
Valuation.
As
such,
ABN
AMRO
does
not
assume
any
liability
or
obligation
for
indemnification
in
the
case
that
future
results
differ
from
the
estimates
and
projections
presented
in
the
Valuation
and
does
not
make
any
declaration
or
warranty
regarding
those
estimates
or
projections.
ABN
AMRO
does
not
assume
any
responsibility
regarding
the
referred
estimates
and
projections,
nor
regarding
the form in which they were elaborated.
19.
ABN AMRO assumes that the Information is true and complete, without any independent verification and, hence, does not assume any
responsibility for the content, exactness, veracity, integrity, consistency, sufficiency or precision of such Information, including, without
limitation,
the
statements
related
to
projections
or
forecasts
of
the
Company,
of
its
Subsidiaries,
the
assumptions
and
estimates
on
which
these
statements and projections were based and of the information discussed with the Designated Representatives. ABN AMRO did not conduct (i)
any
appraisal
of
the
assets
and
liabilities
(contingent
or
not)
of
the
Company,
its
Subsidiaries
and
Affiliates;
(ii)
any
revision
or
audit
of
financial
statements
from
the
Company,
its
Subsidiaries
and
Affiliates
and
of
Net
Indebtedness;
(iii)
any
technical
audit
of
operations
of
the
Company,
its
Subsidiaries and Affiliates; (iv) any valuation of the solvency of the Company, its Subsidiaries and Affiliates in accordance with any legislation
regarding
bankruptcy,
insolvency
or
similar
issues;
or
(v)
any
physical
inspection
of
the
properties,
installations
or
assets
of
Company,
its
Subsidiaries and Affiliates.
Important
Notice (cont.)

8
20.
ABN AMRO presumes and relies upon the exactness, veracity, integrity, consistency, sufficiency and precision of all Information used in the
preparation
of
the
Valuation.
ABN
AMRO
was
informed
by
the
Offeror
and
by
the
Company
that
all
Information
provided
to
ABN
AMRO
or
in
some
way
made
available
to
or
discussed
with
ABN
AMRO
is
correct;
that
all
financial
projections
provided
to
ABN
AMRO
or
in
some
way
made
available
to
or
discussed
with
ABN
AMRO
were
prepared
in
a
reasonable
manner
and
that
they
reflect
the
best
estimates
and
valuations
from
the
period
in
which
they
were
made
available;
and
that,
from
the
time
of
delivery
of
the
Information,
documents
and
reports
provided
up
to
the delivery of the Valuation, to our knowledge there has not been any material alteration in the businesses, nor in the financial situation,
assets,
liabilities,
business
prospects,
commercial
transactions
or
in
the
number
of
stocks
or
options
of
the
Company,
its
Subsidiaries
and
Affiliates,
nor
with
respect
to
any
other
material
factor
that
could
alter
the
Information
and
financial
projections
either
provided
to
ABN
AMRO
or
in
some
way
made
available
or
discussed
with
ABN
AMRO,
or
make
them
incorrect
or
imprecise
in
any
material
respect
or
that
could
have
a
material effect on the conclusions presented in the Valuation.
21.
ABN AMRO does not make, nor will it make, expressly or implicitly, any representation, declaration or warranty with relation to the Information
used for the preparation of the Valuation, nor does it assume any liability or obligation for indemnification related to the content, exactness,
veracity, integrity, consistency, sufficiency and precision of such Information, each of which are the sole and exclusive responsibility of the
Offeror
and/or the Company. ABN AMRO did not provide any auditing, accounting or legal consulting services and the preparation of the
Valuation by ABN AMRO does not include any service or opinions of such nature.
22.
ABN
AMRO
does
not
take
liability
for
any
direct
or
indirect
losses
or
decreased
revenues
that
could
occur
as
a
result
of
the
use
of
the
Valuation.
23.
ABN AMRO does not express through means of the Valuation any judgment regarding the distribution of economic value among the various
types and/or classes of shares of the Company, or of its Subsidiaries or Affiliates.
Important
Notice (cont.)

9
24.
The
Valuation
does
not
constitute
a
judgment,
opinion
or
recommendation
to
the
management
of
the
Offeror
and/or
the
Company,
to
the
shareholders
of
the
Offeror
and/or
the
Company
or
to
any
third
party
with
respect
to
the
appropriateness
or
opportunity
of
the
Offering
or
regarding
the
decision
of
making
or
accepting
the
Offering
(including
the
decision
of
the
Company
shareholders
in
accepting
or
not
accepting
the
Offering).
In
addition,
the
Valuation
is
not
meant
to
be
the
basis
for
any
decision
of
investment
or
disinvestment.
25.
Except where another date is specifically indicated, the Valuation reflects the financial and accounting conditions of the Company, its
Subsidiaries
and
Affiliates
as
of
March
31,
2006
and
is
based
on
Information
available
up
to
April
28,
2006,
such
that
any
alteration
in
such
conditions and Information after to such date could alter the results that have been presented herein. ABN AMRO is not obligated, at any time,
to
update,
revise,
correct
or
reaffirm
any
information
contained
in
the
Valuation
nor
to
provide
any
additional
information
related
to
the
Valuation.
26.
Other
valuations
of
companies
and
sectors
prepared
by
ABN
AMRO
could
treat
market
assumptions
in
a
different
way
than
was
framed
in
this
Valuation;
the
research
departments
and
other
departments
of
ABN
AMRO
and
its
affiliated
companies
may
use
other
analyses,
reports
and
publications,
estimates,
projections
and
different
methodologies
than
those
used
in
the
Valuation,
as
well
as
such
analyses,
reports
and
publications may contain different conclusions from those set out in the Valuation.
27.
ABN AMRO has provided, directly or through its affiliated companies, certain financial and investment banking services to the Company, its
Subsidiaries and Affiliates, as well as to its controlling shareholders, for which it received remuneration, continues to provide these services
and
could,
at
any
time,
provide
them
again.
ABN
AMRO,
directly
or
through
its
affiliated
companies,
is
or
could
become
a
creditor
of
the
Offeror
and
the
Company,
its
Subsidiaries
and
Affiliates
as
well
as
of
the
controlling
shareholder
of
the
Offeror
in
certain
financial
operations.
28.
In
the
normal
course
of
its
activities,
ABN
AMRO
could,
directly
or
through
its
affiliated
companies,
trade
in
securities
of
the
Company
and
of
the Offeror
and of their respective controlling shareholders, subsidiaries and affiliates, on its own behalf or on behalf of its clients and,
consequently, could, at any time, retain buying or selling positions with respect to such securities.
Important
Notice (cont.)

10
29.
In
order
to
comply
with
the
dispositions
of
article
8º,
paragraph
3º
of
CVM´s
Instruction
nº
361,
of
March
5
2002,
ABN
AMRO
states
that
the
professionals responsible for the Valuation Report are Mr. Joel Michael Roberto and Mr. Waldo Edwin Perez Leskovar.
São Paulo, May 1, 2006
BANCO ABN AMRO REAL S.A.
___________________________                                    ___________________________                           
Waldo Edwin Perez Leskovar
Joel Michael Roberto
Executive Superintendent
Executive Superintendent
Important
Notice (cont.)

11
Concerning the requirement found in item 2.3 of letter CVM/SRE/GER-1/Nº1225/2006, referring to the presentation of comments to CVM with
respect
to
the
valuation
report
of
Embrapar
prepared
by
Banco
Bradesco
S.A.
in
August
2004,
ABN
AMRO
clarifies,
first
of
all,
that
the
values
per
lot
of
one
thousand
shares
in
the
two
evaluations
must
not
be
compared,
because
Embrapar
conducted
significant
transactions
after
August
2004,
which
had
a
great
impact
on
its
stockholding
base.
In
May
2005,
Embrapar
implemented
a
capital
increase
of
approximately
1.8
billion
by
issuing
423,906,976
thousand
new
shares
at
a
price
of
R$
4.30
per
lot
of
one
thousand
shares,
increasing
its
stockholding
base
by
127%.
In
addition,
Embrapar
completed
the
merger
of
Telmex
do
Brasil
and
of
the
participation
of
Telmex
in
the
Net,
whose
impact
was
an
increase
by
approximately
230,452,650
thousand
Embrapar
shares.
Thus,
the
total
number
of
shares
issued
Embrapar
increased
from
334,399
thousand
shares
in
August
2004 to 987,726,487 thousand share in May 2006.
In addition, the evaluations were prepared at a time when the competitive scenario of the telecommunications industry was different. Therefore, it
was
not
appropriate
for
ABN
AMRO
to
make
any
value
judgment
concerning
the
premises
adopted
at
the
time
by
Banco
Bradesco
S.A.
in
its study.
ABN
AMRO
based
its
evaluation
on
the
updated
business
plan
of
Embrapar
and
under
the
current
market
conditions
and
competitive
scenario,
which
may
therefore
be
different
from
those,
used
as
reference
by
Banco
Bradesco
S.A.
in
its
evaluation.
Thus,
ABN
AMRO
believes
that
the
price
comparison analyzed by CVM may present distortions in light of the aforementioned events.
Furthermore,
ABN
AMRO
declares
that,
in
preparing
its
Valuation,
did
not
review
or
conduct
any
independent
audit
of
the
information
contained
in
the
evaluation
done
by
Banco
Bradesco
S.A.
in
August
2004,
because
it
was
not
included
in
the
scope
of
the
work
for
which
it
was
retained
by
the
Offeror.
ABN
AMRO
does
not
assume
any
liability
concerning
said
evaluation
prepared
by
Banco
Bradesco
S.A.,
or
for
the
form
in
which
it
was
prepared.
The
preparation
of
economic-financial
evaluations
is
a
complex
process
that
involves
subjective
judgments
and
cannot
be
analyzed
partially.
In
this
sense,
the
analysis
of
select
parts,
summaries
or
specific
aspects
of
the
evaluation
made
by
Banco
Bradesco
S.A.,
without
knowing
the
premises
adopted
and
the
analysis
of
said
evaluation
in
its
entirety
may
lead
to
an
incomplete
and
incorrect
understanding
of
said
analysis and its conclusions.
Compliance with the requirement formulated in item 2.3 of Letter
CVM/SRE/GER-1/Nº1225/2006

12
1
Executive Summary

13
Executive Summary
The
Valuation
is
for
the
purpose
of
determining
the
financial-economic
value
of
Embrapar
in
the
context
of
the
Offering
Pursuant to instruction CVM No. 361 of March 2002, ABN AMRO conducted an analysis employing the following
methodologies:
–
Economic value, based on an analysis of Discounted Cash Flow (“DCF”)
–
Weighted average share price per volume traded during the last twelve months
–
Shareholders’
equity per share value of the shares
Assumptions used for the different methodologies:
–
Economic value: based on business plans provided by the Company
–
Weighted average share price per volume traded during the last twelve months prior to April 29, 2006
–
Book
value
of
the
shares:
calculation
based
on
Embrapar’s
quarterly
financial
statements
as
at
March
31,
2006 reviewed by Ernst & Young
ABN AMRO opted to use the DCF methodology to value the Subsidiaries because this method captures the
growth
potential
and
future
profitability,
adequately
reflecting
the
expected
return
in
light
of
the
country-risk
and
the risk intrinsic to this type of business; it is also appropriate for adequately capturing business opportunities
and adjustments for extraordinary events
For the valuation of Net, company not controlled by Embrapar, we used the Equity Value determined using the
market value of the preferred shares during the last 90 days because this class of shares presents liquidity
(presence in Ibovespa) and dispersion (free float higher than 50%)
Purpose of the
study by ABN
AMRO

14
Executive Summary
To
determine
the
fair
price
of
the
Embrapar
shares,
ABN
AMRO
employed
a
methodology
of
economic
value
based on
–
the
DCF
in
relation
to
the
Subsidiaries,
based
on
business
plans
of
the
operating
companies
–
The
weighted
average
price
per
volume
traded
of
preferred
shares
of
Net
in
the
last
90
days
and
the
net
debt of GB Empreendimentos
The discount rates used for the following companies were:
–
Embrapar
(including
Subsidiaries,
excluding
Star
One):
11.95%
in
nominal
Dollars,
plus
or
minus
0.25%
–
Star One: 11.19% in nominal Dollars, plus or minus 0.25%
Purpose of the
study by ABN
AMRO
Current
simplified
corporate
structure
(1)
ONs: 49,00%
Total: 83,00%
Total: 98,99%
Total: 99,99%
ONs: 37,44%
ONs: 51,00%
Total: 19,81%
Total: 20,80%
Total: 100,00%
Total: 80,01%
Total: 98,00%
Total:100,00%
Total: 99,99%
Total: 100,00%
Total: 100,00%
Vésper S.A.
Vésper São Paulo
S.A.
Embratel Soluções
Ltda.
Click 21 Com. de
Publicidade Ltda.
Primesys Soluções
Empresariais S.A.
Net Serviços de
Comunicação S.A.
Embratel S.A.
Embratel
Participações S.A.
Star One S.A.
BrasilCenter
Comunicações
Ltda.
(2)
GB Empreendimentos e
Participações S.A.
Telmex do Brasil
Ltda.
Legend
Operational
Not operational
Holding
Notes:
(1)
only
includes
Brazilian
companies
and
does
not
consider
non-operating
companies
being
dissolved,
with
the
exception
of
Embratel
Soluções
Ltda.,
which
is
also
in
the
process
of
being
dissolved;
(2)
Embratel
Participações
S.A.
has
a
direct
share
of
2.00%
in
BrasilCenter
Comunicações
Ltda.
(“BrasilCenter”)
Source: Embrapar
Affiliates
Subsidiaries

15
Executive Summary (cont.)
The
calculation
for
determining
the
Equity
Value
of
Embrapar
is
summarized
as
follows:
Subsidiaries
–
Economic value of the assets determined based on the DCF methodology for the operating companies. A
value of zero was assigned to the non-operating companies (holding companies)
–
The consolidated Net Indebtedness of the Company was deducted from the value calculated above
Affiliates
–
Net:
Equity
Value
determined
based
on
the
market
value
of
preferred
shares
in
the
last
90
days
(details
on
page 32)
–
GB
Empreendimentos:
Equity
Value
calculated
based
on
the
economic
value
of
its
participation
in
Net
(Equity
Value
calculated
based
on
its
market
value)
deducted
from
its
Net
Indebtedness
Share participations of the Company and Affiliates used in the Valuation refer to the stock ownership as of
March 31, 2006
Summary of the
Valuation
methodology
Embratel
StarOne
TDB
Primesys
Others
(1)
Subsidiaries
=
Equity value
of
Embrapar
Embrapar
Consolidated
Net indebtedness
(2)
-
+
Affiliates
GB
Empreendimentos
Net
Enterprise Value
Equity Value
Note: (1) includes BrasilCenter, Vésper, Click 21; (2) consolidates the Net Indebtedness of all the Subsidiaries

16
Executive Summary (cont.)
Result of
Embrapar
Valuation
Analysis
of
the
economic
value
of
the
Affiliates
based
on
the
market
value
Analysis of the economic value of the Subsidiaries based on the DCF
Enterprise value,
excluding Net (R$ million)
Equity value,
excluding Net (R$ million)
Notes:
(1)
Nominal
dollars;
(2)
weighted
average
price
per
traded
volume
of
preferred
shares
(PN)
of
Net
for
the
90
days
prior
to
April
29,
2006
(3)
total
number
of
Net
shares
(excluding
Treasury
Shares)
at
March
31,
2006;
(4)
number
of
shares
held
directly
or
indirectly
by
Embrapar
through
GB
Empreendimentos
at
March
31,
2006
(1,466,390,024
shares);
(5)
calculated
based
on
the
position
of
March
31,
2006;
(6)
participation
of
Embrapar
in
GB
Empreendimentos
on
March
31,
2006
1,666
I=(E-H)
Total
Value
of
Embrapar’s
Ownership
Interest
in Affiliates
0.036
H=(F*G)
Net
debt
of
GB
Emprendimentos
relative
to
its
stock
participation
in
Embrapar
83.00%
G
Embrapar
stock
participation
in
GB
Emprendimentos
(6)
0.044
F
Net
debt
of
GB
Emprendimentos
(5)
1,666
E=(A*D)
Equity
value
of
Net
held
by
Embrapar
1,466
D
Number
of
direct
and
indirect
Net
shares
held
by
Embrapar
(million)
(4)
4,493
C=(A*B)
Equity value
of Net
3,955
B
Total number of Net shares (million) (3)
1.136
A
Price of Net shares considered for the Valuation (R$ per share) (2)
Value
in
millions
of
Reais
(except
where
indicated otherwise)
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
7,477
7,336
7,200
3.67%
0.61%
7,536
7,390
7,251
3.93%
0.86%
7,598
7,448
7,305
WACC
(1)
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
5,280
5,138
5,002
3.67%
0.61%
5,338
5,193
5,053
3.93%
0.86%
5,400
5,250
5,107
WACC
(1)

17
Executive Summary (cont.)
Result of
Embrapar
Valuation
Analysis of the total economic value of Embrapar
Notes: (1) it already considers the 80.01% share held by Embratel in Star One; (2) calculated in accordance with the definition of Net Indebtedness described in the Important
Notice on page 3. The 80.01% of Net Indebtedness of Star One is being considered; (3) calculated based on the weighted average price per volume traded over the last 90 days
of
the
PN
shares
multiplied
by
the
number
of
Net
shares
as
of
March
31,
2006
(3,954,663,665
shares);
(4)
ABN
AMRO
considered
the
number
of
shares
issued
by
the
company
and outstanding on March 31, 2006. As reported by the representatives of the Company, there were no changes in the number of shares issued by the Company and
outstanding since March 31, 2006.
Values in million of Reias
(except where indicated otherwise)
Mínimo
-
Máximo
Enterpriese
value of operating Controlled Companies
(1)
A
7,200
7,598
Net debt of Embrapar
Consolidated
(2)
B
2,198
2,198
Equity value of Embrapar
and its Controled
Companies
C=(A-B)
5,002
5,400
Net total Equity Value
D
4,493
4,493
Equity value of Net shares held by Embrapar
(1,466 million shares)
(3)
E
1,666
1,666
Total Equity Value
F=(C+E)
6,668
7,066
Number of Embrapar
shares (million)
(4)
G
987,726
987,726
Price per share (R$ one thousand lot)
F/G
6.75
-
7.15

18
Summary of Embrapar Valuations
The value of the shares of
the  Company determined
by ABN AMRO is between
R$ 6.75 per lot of one
thousand shares and R$
7.15 per lot of one
thousand shares
Value per share (R$ per lot of one thousand shares )
5.29
4.83
6.75
7.15
7.59
Value of Shareholders’
Equity
Weighted Average
Price of
PN Shares
Weighted Average
Price of
ON Shares
Valuation
range

19
2
Financial Advisor Information

20
ABN AMRO Real S.A. is the responsible for the elaboration of this Valuation, through its Corporate Finance
area. The ABN AMRO Corporate Finance department in Brazil is headquartered in São Paulo and has 14 duly
certified professionals. The department also has the support of the Corporate Finance global department of the
ABN AMRO Group, through sector teams in London, Amsterdam and Hong Kong, with approximately 350
professionals
Recent experiences involving the valuation of publicly traded companies in Brazil include, among others, the
valuation
of
TIM
Celular
S.A.
(2006),
TIM
Participações
S.A.
(2006
and
2005),
TIM
Sul
S.A.
(2005),
TIM
Nordeste
Telecomunicações
S.A.
(2005),
Embratel
Participações
S.A.
(2005),
Tele
Celular
Sul
Participações
S.A.
(2004),
Tele
Nordeste
Celular
Participações
S.A.
(2004),
Telpe
Celular
S.A.(2004).
Telasa
Celular
S.A.
(2004),
Telepisa
Celular
S.A.
(2004),
Telern
Celular
S.A.
(2004),
Telpa
Celular
S.A.
(2004),
Teleceara
Celular
S.A.
(2004),
Zivi
S.A
(2003),
Eberle
S.A.(2003),
Biobrás
S.A.
(2002),
Copene
(2002),
Copesul
(2002)
and
Trikem
(2002)
The
internal
approval
process
of
the
valuation
reports
issued
by
ABN
AMRO
comprises
its
revision
by
members
of
the
Legal
Department
of
ABN
AMRO,
and
discussion
and
approval
at
an
internal
committee,
which
includes
Executive Director members and professionals of the Corporate Finance area responsible for the valuation
report. The main assumptions and methodologies used in the elaboration of valuation are discussed and
justified at the internal committee
Qualifications of ABN AMRO

21
Recent credentials in the telecommunication sector
Brazil -
M&A
League Tables 2006
Teléfonos de Mexico S.A.
BRL 1,900,000,000
Tender offer for the purchase of all
of the common and preferred shares
of EMBRAPAR held by the
minorities, representing
27.58%
of
Embrapar
total
capital
Financial advisor
Brazil, May 2006
Latin America -
M&A
League Tables 2006
Rank
Advisor
Amount
(USD mln)
Deal
1
      
UBS                     
32,587.5
   
11
     
2
      
ABN AMRO
23,297.2
   
6
       
3
      
Credit Suisse
23,258.9
   
6
       
4
      
Santander
17,020.9
   
1
       
5
      
Rothschild
13,272.2
   
8
       
6
      
Goldman Sachs
10,620.9
   
12
     
7
      
Merrill Lynch
6,881.2
     
9
       
8
      
JP Morgan
6,785.7
     
5
       
9
      
Banco Itau BBA
4,662.8
     
8
       
10
    
Citigroup
4,570.0
     
10
     
Source: Bloomberg as at 16-Aug-06. Deals announced in
2006
Rank
Advisor
Amount
(USD mln)
Deal
1
      
UBS
37,906.1
   
17
     
2
      
Credit Suisse
25,815.7
   
11
     
3
      
ABN AMRO
23,574.3
   
8
       
4
      
Santander
17,020.9
   
1
       
5
      
Rothschild
16,430.0
   
15
     
6
      
JP Morgan
15,641.1
   
18
     
7
      
Goldman Sachs
12,036.5
   
14
     
8
      
Citigroup
9,827.0
     
25
     
9
      
Merrill Lynch
8,708.7
     
11
     
10
    
Morgan Stanley
7,660.2
     
7
       
Source: Bloomberg as at 16-Aug-06. Deals announced in
2006
Embratel Participações
S.A.
BRL 1,205 million
Acquisition by Embratel
Participações
S.A. of 37.1% stake in
Net Serviços S.A. from Telmex S.A.
via share exchange
Financial advisor
Brazil, October 2005
Embratel
Participações
S.A.
BRL 271,000 million
Acquisition by Embratel
Participações
S.A. of 100% of
Telmex
do
Brasil
Ltda.
from Telmex
S.A. via share exchange
Financial advisor
Brazil, October 2005
TIM Participações
S.A., TIM Sul
S.A. and
TIM Nordeste
Telecomunicações S.A.
BRL 627,492,967
Upstream
merger
of
operating
companies
via
Incorporação
de
Ações
Financial
advisor
Brazil, May 2005
Telesp
Celular
Participações
S.A.
BRL 2,054,000,000
Capital
increase
via
issuance
of
negotiable
subscription
rights
Financial
advisor
Brazil, January
2005
Tele
Celular
Sul
Participações
S.A.
USD 408,000,000
Merger
of Tele
Nordeste
Participações
S.A.
and
Tele
Celular
Sul
Participações
S.A.
Financial
advisor
Brazil, August 2004
Compañía
de
Telecomunicaciones
de
Chile
S.A.
USD 1,301,000,000
Sale of 100% of the
shares
of
Telefónica
Móvil
de Chile S.A. to
Telefónica
Móviles
Financial
advisor
Chile, July
2004
TIM Celular
S.A.
BRL 15,857,647,321
Advisor
to
TIM
Celular
S.A.
in
connection with its acquisition by
TIM Participações
S.A.
Financial
advisor
Brazil, March 2006

22
Recent credentials in the telecommunication sector (cont’d)
Tele
Nordeste Celular
Participações
S.A.
BRL 741,611,833
Corporate
restructuring
of
group
companies
via
a
series
of 5 merger
transactions
Financial
advisor
Brazil, January
2004
Telemar
and
IG
USD 17,487,384
Provided valuation advice to
Tele
Norte
Leste
Part.
S.A.
in
connection with the sale of its
17.6% stake in Internet Group
Limited to Brazil Telecom S.A.
Financial advisor
Brazil, May 2004

23
Qualifications of ABN AMRO
Waldo Pérez
Executive Superintendent
Waldo
Pérez
is
a
executive
superintendent
responsible
for
Corporate
Finance
Integrated
Energy
(Power
&
Utilities,
Oil
&
Gas
and
Mining
&
Metals)
for
Latin
America,
having
closed
M&A
transactions
in
Brazil,
Argentina,
Chile,
Bolivia
and
Colombia.
Mr.
Pérez
has
significant
experience
in
auction-style
disposals;
asset
sales;
privatizations;
IPOs
and
secondary
public
offerings.
He
has
closed
transactions
in
the
Power
&
Utilities,
Oil
&
Gas,
Water
&
Sewage,
Chemicals
&
Petrochemicals,
Telecom,
Auto
Parts,
Financial
Institutions
and
Retail
sectors.
Mr.
Pérez
joined
ABN
AMRO
in
1997.
Prior
to
ABN
AMRO,
Mr.
Pérez
worked
for
Chase
Manhattan
Corporation
in
USA,
consulted
for
Dell
Corporation
in
the
USA
and
began
his
career
at
IBM
in
New
York,
where
he
worked
4
years.
Mr.
Pérez
has
a
Bachelors
and
Masters
in
Electrical
Engineering
from
Georgia
Institute
of
Technology,
USA
and
a
MBA
degree
from
The
University
of
Texas
at
Austin,
USA. 
Mr. Pérez
is fully proficient in English, Portuguese and Spanish.
Selected completed transactions included:
Client
Country
Counterpart
Transaction
Industry
BHP Billiton
Brazil
CVRD
Sale of 45% stake in Valesul
Metals & Mining
Yara
Brazil
Puggina family
Acquisition of 47% stake in Fertibras
Agribusiness
BG Plc
Brazil
Grupo Algar
Sale of Iqara Telecom
Telecom
BG Plc
Brazil
Neovia
Sale of DirectNet
Telecom
Petrobras
Brazil
El Paso
Acquisition of Macaé power plant
Oil & Gas
CEMIG
Brazil
Grupo Rede
Acquisition of UHE Rosal
Power and Utilities
Petrobras
Brazil
MDU resources and Eike
Acquisition of MPX power plant
Oil & Gas
Petrobras
Brazil
17 banks
Acquisition of Eletrobolt power plant
Oil & Gas
National Grid plc
Argentina
Dolphin
Sale of Transener
Power and Utilities
ABN AMRO Asset Management
Argentina
Banco Itau Buen Ayre
Sale of Asset Management business
Financial Institutions
Kloninklijke Ahold
Brazil
Wal-Mart International
Sale of Supermercados Bompreço
Retail
Kloninklijke Ahold
Brazil
Unibanco S.A.
Sale of HiperCard
Financial Institutions
Kloninklijke Ahold
Brazil
Acon Investments
Sale of G. Barbosa
Retail
National Grid plc
Argentina
Management
Sale of Silica Networks
Telecom
National Grid plc
Chile
Local Investors
Sale of Manquehuenet
Telecom
EPM
Colombia
Government of Colombia
Acquisition of EDEQ and CHEC
Power and Utilities
Banco Real
Brazil
Telemar
Outsourcing of IT networks
Telecom
Petrobras Química S.A.
Brazil
Odebrecht/Mariani
Creation of Braskem
Petrochemicals
Fletcher Building
Bolivia
Soboce S.A.
Sale of Cement Business
Building & Construction
CVRD
Brazil
N/A
Global Secondary Offering
Mining & Metals
Fagor Ederlan
Brazil
Fundição Brasileira
Acquisition of controlling stake
AutoParts
EMOS
Chile
Suez
Privatization of EMOS
Water & Sewage

24
Qualifications of ABN AMRO
Waldo Pérez
Executive Superintendent
Selected completed transactions included:
Client
Country
Counterpart
Transaction
Industry
Agunsa/Dragados
Chile
Govt. Chile
Santiago Airport Privatization
Transportation
Agip
Brazil
Shell
Acquisition of Gas Stations
Oil & Gas
Telefonica
Brazil
Govt. Ribeirão Preto
Privatization of CETERP
Telecom
Brazilian Government
Brazil
N/A
Development of its 8 year plan
Infrastructure
Agip Petroli
Brazil
Cia. São Paulo Petroleo
Acquisition of controlling stake
Oil & Gas
Brasholanda
Brazil
Various Investors
Sale of controlling stake
Plastics
BASF
Brazil
Knauf/Storopack
100% sale
Petrochemicals

25
Qualifications
of ABN AMRO
Joel Roberto
Executive Superintendent
Valuation Report
Joel joined ABN AMRO in London in 1997, having previously spent four years as a corporate lawyer in New York City and
London specializing in M&A and equity capital markets transactions. His broad-based advisory experience includes
privatizations;
negotiated
and
non-negotiated
take-overs;
auction-style
disposals;
asset
sales;
spin-offs;
IPOs
and
secondary public offerings; and private placements. He specialized in telecommunications sector transactions from 1998-
2001
as
head
of
ABN
AMRO’s
European
Telecoms
Corporate
Finance
Group;
transferred
to
ABN
AMRO’s
São
Paulo
office in January 2002; and since January 2004 he is executive superintendent of Bank’s Telecoms, Media and
Technology (TMT) Advisory Group in Latin America.  Joel holds a B.A. in Philosophy from UC-Berkeley and a J.D. from
Harvard Law School and speaks English (native, U.S. citizen), Portuguese (fluent) and German (proficient).
Selected completed transactions included:
Client
Country
Counterpart
Transaction
Industry
TIM ("TIM Part." and "TIM Celular")
Brazil
Shareholders
Restructuring and Merger
Telecom
TIM ("TIM Part." and "Opcos")
Brazil
Shareholders
Share exchange merger
Telecom
TIM ("TND" and "TSU")
Brazil
Shareholders
Merger
Telecom
TIM ("TND" and "Telpe")
Brazil
Shareholders
Restructuring and Merger
Telecom
Embratel
Participações
S.A.
Brazil
Telmex
S.A.
Acquisition of Net Serviços
Telecom
Embratel
Participações
S.A.
Brazil
Telmex
S.A.
Acquisition of Telmex
do Brasil
Telecom
BG Group Plc
Brazil
Neovia
Telecom. S.A.
Sale of DirectNet
Telecom
BG Group Plc
Brazil
CTBC and Engeredes
Sale of Iqara
and BG Telecom Hold.
Telecom
Telemar
Brazil
Brasil
Telecom
Sale of IG
Internet
Vivo
Brazil
n.a.
Capital increase
Telecom
CTC Chile
Chile
Telefónica
Moviles
Sale of CTC Moviles
Telecom
Acos
Vilares
Brazil
Buhler-Udderholm
Sale of division
Metals
National Grid plc
Argentina
Management
Sale of Silica Networks
Telecom
National Grid plc
Chile
Local investors
Sale of Manquehuenet
Telecom
Grupo
Carvajal
Brazil
Bellsouth
Acquisition of Listel
Media
KPN Telecom
Netherlands
n.a.
Secondary offering
Telecom
KPN Telecom
Netherlands
NTT Docomo
Sale of 15% stake in KPN Mobile
Telecom
OTE S.A.
Greece
Gov. of Macedonia
Auction of GSM license
Telecom
OTE S.A.
Greece
Gov. of Macedonia
Privatization of Maktel
Telecom

26
In
compliance
with
the
provisions
of
article
8º
of
Instruction
No.
361,
dated
as
of
March
05,
2002
issued
by
the
Securities
Exchange
Comission
(Comissão
de
Valores
Mobiliários
-
CVM)
ABN
AMRO
renders
the following representations:
ABN AMRO does not own shares issued by the Company, either directly or through its controlling or controlled
companies
or
persons
associated
therewith,
in
its
own
name
or
under
its
discretionary
administration,
except
as
stated below:
–
ABN
AMRO
FI
AÇÕES
IBOVESPA:
75,750,000
preferred
Embrapar
shares
(position
as
of
04/28/2006)
–
SUDAMERIS
FI
AÇÕES
INDEX:
76,000,000
preferred
Embrapar
shares
(position
as
of
04/28/2006)
–
SUDAMERIS FI AÇÕES SUL ENERGY (position as of 04/28/2006)
ABN AMRO  provided, directly or through its affiliated companies, certain financial and investment banking
services to the Company, its Subsidiaries and Affiliates, as well as to its controlling shareholder, for which it
received remuneration, continues to provide these services and could, at any time, provide them again. ABN
AMRO,
directly
or
through
its
affiliated
companies,
is
or
could
become
a
creditor
of
the
Offeror
and
the
Company,
its
Subsidiaries
and
Affiliates
as
well
as
to
the
controlling
shareholder
of
the
Offeror
in
certain
financial operations. In the normal course of its activities, ABN AMRO could, directly or through its affiliated
companies,
trade
in
securities
of
the
Company
and
of
the
Offeror
and
of
their
respective
controlling
shareholders,
subsidiaries
and
affiliates,
on
its
own
behalf
or
on
behalf
of
its
clients
and,
consequently,
could,
at
any time, retain buying or selling positions with respect to such securities. Notwithstanding the aforementioned
relationship
and
except
for
the
Information,
ABN
AMRO
does
not
have
other
commercial
or
credit
information
of
any
nature
related
to
the
Company
and
its
Affiliates
which
could
have
an
impact
on
the
Valuations
Representations of the Financial Advisor

27
ABN
AMRO
declares
that
the
Offeror,
its
controlling
shareholder
and
its
management
did
not
direct,
interfere,
limit, render difficult nor undertake any action that compromised the access to, utilization or attainment of the
information, goods, documents or working methodologies relevant to the quality of the conclusions presented
herein, nor did they either determine or restrict the capacity of ABN AMRO to determine the methodology used
to reach the conclusions presented in the Valuation or restrict the capacity of ABN AMRO to determine the
conclusions presented in the Valuation.
ABN AMRO has no conflict of interest with respect to the Offeror, the Company, their controlling stockholders
and
their
management,
that
would
diminish
the
autonomy
necessary
for
the
performance
of
its
functions
with
respect to the preparation of the Valuation
For the services relating to the Valuation, regardless of the outcome of the Offering, ABN AMRO will receive
US$
500,000.00
(five
hundred
thousand
dollars)
from
the
Offeror.
The
Offeror
has
agreed
to
indemnify
ABN
AMRO and its affiliates for certain liabilities that may arise from the performance of the Valuation services, and
has agreed to reimburse ABN AMRO for legal fees of its advisors incurred in the preparation of the Valuation
In
compliance
with
the
provisions
of
article
8,
V,
“b”
of
Instruction
CVM
No.
361,
dated
as
of
March
05,
2002,
among the valuation criteria set forth in the Valuation, ABN AMRO considers the discounted cash flow
methodology the most appropriate method for purposes of its valuation of the Company and its Subsidiaries,
provided that the valuation of the Company’s minority interest (37,08%) in Net was based on historical market
value according to the weighted average trading price of Net’s preferred shares on BOVESPA,  in the period of
90 (ninety) days prior to April 29, 2006
Representations of the Financial Advisor

28
This Valuation presents:
–
Information
on
Embrapar
shares,
including
the
stock
composition,
the
accounting
net
worth
value
per
share, and the average weighted price per traded volume of Company shares on BOVESPA over the last
12 months
–
Economic value of the shares based on the Discounted Cash Flow (DCF)
–
Information tables with the assumptions used in the DCF valuation
Pursuant to article 8º, §6º, of CVM Instruction 361, ABN AMRO declares that during the 12 (twelve) months
prior
to
the
date
of
the
Valuation
it
received
from
the
Offeor
and
from
the
Company
an
amount
equivalent
in
Reais
to Euro 838,000.00 (eight hundred thirty-eight thousand Euros), as compensation for consulting,
evaluation, audit and similar services (in compliance with the request made in item 2.2 of Letter
CVM/SRE/GER-1/Nº1225/2006)
Representations of the Financial Advisor (cont.)

29
3
Description of
Embrapar
and
Net

30
Embrapar: history of the industry
In
1998,
the
Brazilian
government
dismantled
the
Telebras
system
in
12
holding
companies
and
privatized
the
sector. The operations in fixed line and long distance intra-states and intra-region were divided in four regions,
each one yielded to one company: Region I (North/Northeast/part of Southeast) to Telemar, Region II
(South/Center-West)
to
Brasil
Telecom,
and
Region
III
(State
of
São
Paulo)
to
Telefónica.
Fixed
telephony
services in national and international long distance forms (Region IV) were also granted to a single company,
Embratel
Immediately after privatization, ANATEL auctioned, for each of the four regions, additional licenses for fixed
telephony services in intra-state and intra-region long distance forms, as well as national and international long
distance services, creating an unique player for each local service operator and for Embratel
In
1999,
the
Brazilian
government
opened
the
market
of
inter-urban
calls
with
the
introduction
of
the
compulsory
selection of a long distance operators (PIC code). Initially, operators of fixed telephony in the local and long
distance intra-state and intra-region regions were not allowed to carry long distance calls among the three
regions defined in the privatization process
Source:
20F
2005
Embrapar
Report
Privatization of telecommunication
services in the country
1998
Introduction of the PIC code
1999
Creation of Embrapar
through the spin-off of
Telebrás
Auction of
mirror 
licenses
2000
2001

31
In 2002, it was authorized by ANATEL a concession limiting the number of licenses to telecommunication
services.
Then,
Embratel
started
to
offer
local
services.
On
the
other
hand,
Telefónica,
Telemar
and
Brasil
Telecom received concessions to offer long distance services inter-regional and international
In 2003, ANATEL approved the increase of tariffs based on the IPCA inflation index. In 2004, the Superior
Tribunal
de
Justiça
concluded
that
the
inflation
index
IGP-DI
was
a
better
index
for
calculation
purposes.
Since
that date, it was determinate that the tariffs increase should be made gradually
After
that,
ANATEL
defined
the
terms
for
concession
renegotiations.
Embratel
notified,
in
2005,
its
intention
of
renovation that started in 2006 and is for 20 years
Still in 2003, the providers of cellular telephony offered to its clients the possibility to choose the operator for
long distance calls (PIC code). This choice became mandatory since January 2004
In
2004,
ANATEL
compelled
the
non
entailing
of
the
network
share
that
establishes
maximum
prices
for
several
network
elements
and
limited
the
time
of
this
elements.
The
contract
that
Embratel
signed
with
a
local
operator
is still in phase of tests
Increase of tariffs
2003
PIC code for cellular
telephony (long
distance)
Terms for the
renovation of
concessions
Order to disentail network share
2004
Anatel
grants additional
authorizations for
telecommunication services
2002
Embratel starts to offer services of
local telephony, but competitors begin
to provide long distance services
Embrapar: history of the industry (cont’d)
Source 20F 2005 Embrapar Report

32
Embrapar: history of the industry (cont’d)
The telecommunication industry is subject to fast technological changes that may have an adverse impact on
the operations of Embratel. Moreover, because of the high influence of government regulating agencies,
Embratel (and the whole sector) can be impacted by factors such as: currency fluctuations, inflation social and
price instability, interest rates, liquidity of capital and local credits markets, fiscal polices, among other political,
diplomatic, social and economic developments that may occur
Source: 20F 2005
Embrapar
Report

33
Embrapar: competitive scenario
Embrapar
is the holding company created in 1998 to retain control of Embratel upon its privatization. Since
2002, Embratel is also authorized to operate a fixed telephony service in local form. Its subsidiary Star One is
authorized to offer signal transmission services via satellite to the entire nation
Embratel is the only provider of local service present in all Brazilian states, permitting its clients to have an
unique provider of fixed telecommunication services
As at 2002, Embratel was exclusive supplier of inter-states and international long distance services in Brazil.
Currently,
Embratel
suffers
competition
of
companies
that
ANATEL
yielded
licences
in
2002,
according
to
table
below, beyond the telephony services resellers that operates in Brazil. Using a different technology, its services
have tariffs significantly lower for international calls
In
addition
to
the
local
telephony
(recently
through
VoIP
technology
too)
and
long
distance
business,
Embratel
has a portfolio that includes transmission of video, data and voice, due to, specially, the size of the national
territory
through
satellite
solutions.
Embratel
innovated
too
by
charging
tariffs
on
its
calls
on
a
per
minute
basis
ANATEL obligates the operators to expand the individual access for fixed telephony services to provide
national
coverage
until
2025.
In
case
a
concessionary
does
not
fulfill
its
goals,
ANATEL
can
grant
an
authorization to competitors and oblige concessionaries to provide others with access to its network
The increase of the number
of competitors in the same
segments that the Company
operates has resulted in
greater competition in these
markets
Region
Location
Long distance
Region I
Telemar, CTBC Telecom
Telemar, Intelig
Region II
Brasil
Telecom, Global Village Telecom
Brasil
Telecom, Intelig
Region III
Telefónica
Telefónica, Intelig
Fonte: INFOinvest e relatório 20F de 2005 da Embrapar
Source: 20F 2005 Embrapar Report

34
Embrapar: historical data
Source: quarterly reports of Embrapar
Historical performance of Embrapar
R$ million
2002
2003
2004
2005
1T06
Net revenues
7.371,6
7.043,6
7.332,9
7.565,3
2.036,9
EBITDA
1.453,5
1.782,9
1.373,4
1.694,1
527,7
Margin EBITDA
19,7%
25,3%
18,7%
22,4%
25,9%
Operational results (EBIT)
311,3
630,2
227,7
644,3
240,8
Margin EBIT
4,2%
8,9%
3,1%
8,5%
11,8%
Net profit / (loss)
(626,3)
223,6
(339,3)
174,3
127,9

35
Legend
Operational
Not operational
Holding
Embrapar
simplified corporate structure
(1)
, according to information received by its Designated Representatives, is shown in the
following diagram:
Embrapar: simplified corporate structure
Notes:
(1)
only
includes
Brazilian
companies
and
does
not
consider
non-operating
companies
in
the
process
of
being
dissolved,
with
the
exception
of
Embratel
Soluções
Ltda.,
which
is
also
in
the
process
of
being
dissolved;
(2)
Embratel
Participações
S.A.
has
a
direct
share
of
2.00%
in
BrasilCenter
Comunicações
Ltda.
Source: Embrapar
ONs: 49.00%
Total: 83.00%
Total: 98.99%
Total: 99.99%
ONs: 37.44%
ONs: 51.00%
Total: 19.81%
Total: 20.80%
Total: 100.00%
Total: 80.01%
Total: 98.00%
Total:100.00%
Total: 99.99%
Total: 100.00%
Total: 100.00%
Net Serviços de
Comunicação S.A.
Embratel S.A.
Embratel
Participações S.A.
Star One S.A.
BrasilCenter
Comunicações
Ltda.
(2)
GB Empreendimentos e
Participações S.A.
Telmex do Brasil
Ltda.
Primesys Soluções
Empresariais S.A.
Embratel Soluções
Ltda.
Click 21 Com. de
Publicidade Ltda.
Vésper S.A.
Vésper São Paulo
S.A.
Affiliates
Subsidiaries

36
Net: history of the industry
In Brazil, Pay-TV services are provided through cable TV systems, MMDS and DTH via satellite, which are
granted and regulated by ANATEL
In accordance with Law No. 8,977/95 and Decree No. 2,206/97, cable TV operators must obtain a concession
from ANATEL to be able to provide such services in Brazil. None of the concessions to provide cable TV
services in a specific area are exclusive. Concessions are granted by ANATEL for a period of 15 years and they
are subject to renewal for equal and successive periods. The license may only be granted to Brazilians who are
citizens by birth or who have been naturalized for more than 10 years or to companies regularly incorporated
under Brazilian laws. headquartered in Brazil and for whom 51% of whose voting capital stock is held by
Brazilians who are citizens by birth or who have been naturalized for more than 10 years
In 1999, ANATEL provided through Resolution No. 190, that subscription television providers may also offer
audio and video signals through their cable networks, and that they may thereby offer high speed Internet
access
The Brazilian subscription television market witnessed profound growth beginning in the second half of the 90’s,
achieving by the end of 2005 the equivalent of 4,101 thousand subscribers
Source:
Net
annual
report
for
2005
and
Brazilian
Association
of
Television
by
Subscription
(Associação
Brasileira
de
Televisão
por
Assinatura
-
ABTA)

37
Sky
21%
DirecTV
11%
TVA
8%
Vivax
7%
Net
36%
TV
Cidade
2%
Outros
15%
Net: competitive scenario
Net was constituted in 1993 and started its operations through the acquisition of several cable television
operators
in
the
North
and
Center-West
regions
of
Brazil.
In
1993
and
1994,
Globopar
and
Ralph
Partners
II
entered
in
the
company
to
become
strategic
partners.
Since
then,
Net
acquired
Globotel,
Net
Sul
and
Vicom
with the intention to increase its presence in the national market
At present, Net is the main provider of Pay-TV in Brazil and offers new and advanced services of broadband. At
December 31, 2005, Net subscribers represented 60% of the entire
cable television structure in Brazil (6.7
million homes reached) and 36% of the total Pay-TV subscribers, concentrated mainly in the classes A and B
Starting in 2002, Net also increased its offerings of broadband services. reaching a market share of
approximately 11% by the end of 2005
Net operates in a select demographic region. As of the end of 2005 it was present in 44 cities which, according
to IBGE data, represent in aggregate, more than 45% of the Brazilian GDP and comprise close to one-third of
Class A and B households
Market share of Pay-TV
operators (end of 2005)
Market share of broadband Internet providers           
(end of 2005)
Source: presentation by Net based on 2005 annual results
Speedy
33%
BrTurbo
27%
Velox
22%
Vírtua
11%
Outros
7%
As of March 31, Net had
1,599.5 thousand cable
television subscribers and
451.6 thousand broadband
subscribers

38
Net: historical data
Historical performance of Net
Source: quarterly reports of Net
R$ million
2002
2003
2004
2005
1T06
Net revenues
1.150,7
1.245,4
1.392,7
1.593,1
438,8
EBITDA
178,7
306,5
376,4
450,1
116,4
Margin EBITDA
15,5%
24,6%
27,0%
28,3%
26,5%
Operational results (EBIT)
(99,6)
43,1
133,0
238,7
69,8
Margin EBIT
-8,7%
3,5%
9,5%
15,0%
15,9%
Net profit / (loss)
(1.125,4)
(268,4)
(45,4)
125,7
7,2

39
Macroeconomic Assumptions
Principal Macroeconomic Assumptions
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Inflation (IPCA)
4.24%
3.97%
3.38%
3.32%
3.42%
3.55%
3.67%
3.74%
3.74%
3.74%
Inflation (IGPM)
3.46%
4.02%
3.88%
3.83%
5.88%
4.43%
4.07%
3.97%
3.97%
3.97%
Exchange Rate -
end of period (R$/US$)
2.35
2.45
2.55
2.65
2.86
2.98
3.10
3.22
3.27
3.33
Average Exchange Rate during the period (R$/US$)
2.20
2.40
2.50
2.60
2.76
2.92
3.04
3.16
3.21
3.30
Selic
Rate (average for the year)
15.15%13.48%
13.01%12.03%10.86%
8.96%
8.96%
9.04%
9.04%
9.04%
Real GDP Growth
3.97%
4.03%
4.44%
4.64%
4.52%
4.48%
4.34%
4.12%
4.12%
4.12%

40
4
Valuation by the Average
Weighted Price of Shares

41
Valuation by the Average Weighted Price of ON Shares of
Embrapar
Source: Economática
Price Evolution of Embrapar ON Shares and Trading Volume (EBTP3)
Volume
Closing -
ON
0
250
500
750
1,000
1,250
1,500
apr/05
jun/05
aug/05
oct/05
dec/05
feb/06
apr/06
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
EBTP 3
Number of
titles (thd)
Volume
(R$ thousand)
Share price
(R$ / 1,000 shares)
Daily average for last month
33,050
164
4.98
Daily average for last six months
26,983
140
5.20
Daily average for last twelve months
24,612
115
4.87

42
Valuation by the average weighted price of Embrapar PN Shares
Price Evolution of Embrapar PN shares and Trading Volume (EBTP4)
Source: Economática
Volume
Closing PN
0
20,000
40,000
60,000
80,000
apr/05
jun/05
aug/05
oct/05
dec/05
feb/06
apr/06
0.00
2.00
4.00
6.00
8.00
EBTP 4
Number of
titles (thd)
Volume
(R$ thousand)
Share price
(R$ / 1,000 shares)
Daily average for last month
3,509,068
17,884
5.10
Daily average for last six months
2,997,701
16,872
5.63
Daily average for last twelve months
3,087,640
16,254
5.29

43
0
2,000
4,000
6,000
8,000
apr/05
jun/05
aug/05
oct/05
dec/05
feb/06
apr/06
0.00
4.00
8.00
12.00
16.00
Volume
Closing -
ADR
Valuation by the Average Weighted price of Embrapar ADRs
Source: Economática
Note: (1) One ADR represents 5 lots of one thousand preferred shares per lot
Evolution of the Prices of Embrapar ADR
(1)
s and the Volume Negotiated (EBT)
EBT
Number of
titles (thd)
Volume
(US$ thousand)
Share price
(US$ / 5,000 shares)
Daily average for last month
230
2,747
11.94
Daily average for last six months
153
1,931
12.65
Daily average for last twelve months
160
1,844
11.53

44
Valuation by the Average Weighted Price of Embrapar Shares
(cont.)
Note: (1) Average weighted price during the 12 months prior to April 29, 2006. (2) One ADR represents 5 lots of one thousand preferred shares
Results Obtained by Valuation of the Average Weighted Price of Shares
The
average
weighted
price
of
Embrapar
shares
on
the
BOVESPA
during
the
last
12
months
prior
to
April 29,
2006 and the daily average trading volume were, respectively:
–
EBTP
3:
R$
4.83
per
lot
of
one
thousand
shares
and
approximately
R$
115
thousand
per
day
–
EBTP
4:
R$
5.29
per
lot
of
one
thousand
shares
and
approximately
R$
16,254
thousand
per
day
The
average
weighted
price
of
Embrapar
ADRs
during
the
last
12
months
prior
to
April
29,
2006
and
the
daily
average of ADR negotiations were. respectively:
–
EBT
(2)
: US$ 11.53 per lot of five thousand shares and approximately US$ 1,844 thousand per day

45
5
Valuation by the value of
Shareholders’
Equity

46
Valuation by the Value of Shareholders’
Equity
Embrapar –
Shareholders’
Equity
Source: Company information
Note
(1):
The
number
of
Company
shares
considered
for
the
calculation
of
Shareholders’
Equity
of
Embrapar
excludes
treasury
shares
The
value
of
Shareholders’
Equity
on
the
basis
of
the
Company's
balance
sheet
as
of
March
31,
2006 is R$ 7.59 per lot of one thousand shares
Equity Shares -
March 31, 2006
Equity value of Embrapar
at March 21, 2006 (in millions R$)
7,493
Number of shares of Embrapar
(millions)
(1)
987,726
Equity of value of Embrapar
(R$/  thousand shares)
7.59

47
6
Financial-economic
valuation of
Embrapar

48
3a
Methodology

49
Methodological considerations
The
calculation
for
determining
the
Equity
Value
of
Embrapar
is
summarized
as
follows:
Subsidiaries
–
economic value of the assets determined based on the DCF methodology for the operating
Subsidiaries. A value of zero was assigned to the non-operating companies (holding companies)
–
The consolidated Net Indebtedness of the Company was deducted from the value calculated above
Affiliates
–
Net:
Equity
Value
determined
based
on
the
market
value
of
preferred
shares
over
the
last
90
days
(details on page 32)
–
GB
Empreendimentos:
Equity
Value
calculated
based
on
its
participation
in
Net
(Equity
Value
calculated based on its market value) deducted from its Net Indebtedness
Share participations of the Company and Affiliates used in the Valuation refer to the stock ownership as of
March 31, 2006
Summary of the
valuation
methodology
Embratel
StarOne
TDB
Primesys
Others
(1)
Subsidiaries
=
Equity Value
of
Embrapar
Embrapar
Consolidated
Net Indebtedness
(2)
-
+
Affiliates
GB
Empreendimentos
Net
Enterprise Value
Equity Value
Note: (1) includes BrasilCenter, Vésper, Click 21; (2) consolidates the Net Indebtedness of all the Subsidiaries

50
Calculation Methodology of the value of Subsidiaries
ABN AMRO believes that the DCF methodology should be the most appropriate, should the information
necessary for the preparation of a DCF be available, since DCF takes the operational cash flow of the
enterprises into consideration discounted by the respective projected cost of capital. In that manner, the risk
profile and the cash generation potential are projected in greater detail
Cash flow projections were made in nominal Reais and converted to nominal Dollars in accordance with the
average exchange rates expected for each year of the projected period in conformity with the table of
macroeconomic projections indicated on page 44. The conversion of cash flow to nominal Dollars was made to
adjust
such
flows
to
the
WACC
(Weighted
Average
Cost
of
Capital)
,
which
was
expressed
in
nominal
Dollars
The net present value of the tax benefit related to the utilization of the tax losses and the negative Embratel
C.S.L.L. base as of March 31, 2006 (VPL calculated on the basis on a WACC of 11.95%) was also added to the
calculation of the Enterprise Value of the Subsidiaries
After the net present value of the Subsidiaries was calculated in Dollars, the amount was converted into Reais
at the Ptax rate 800 of R$/US$ 2.17 on March 31, 2006
The result of the valuation of the Subsidiaries is presented in an interval manner on the basis of the following
variables:
–
WACC, in nominal Dollars, varying by 0.25 percentage points; and
–
Rate of growth in perpetuity, in nominal Dollars, varying by 0.255 percentage points; it is 0.61% in the base
scenario for the Subsidiaries, except for Star One where it was 3.67%
The base date utilized for this Valuation is March 31, 2006 and the projection horizon includes the period from
2006 to 2015
Subsidiaries

51
Calculation Methodology of the Interval of Value of the
Operational Subsidiaries (Net)
For the valuation of Embrapar’s holdings in Net, the utilization of Net's market value was chosen because:
–
ABN AMRO did not have access to the business plan of Net that reflects its financial, operational and
commercial
situation,
present
and
future,
and
which
was
approved
by
its
administration,
or
access
to
the
budget for the year 2006 or other analyses, studies and projections as of January 1, 2006
–
ABN AMRO did not have access to Net representatives for discussions in regard to Net prospects,
estimates and projections of future performance
–
The class of shares used to value Net presents broad liquidity (presence on the IBOVESPA) and
dispersion
(preferred
shares
have
a
free
float
greater
than
50%)
–
CVM 361 instruction and Article170 the Corporation Law provide the possibility of the adoption of such
methodology
The quotes of Net preferred shares were adopted as the market reference because:
They have greater liquidity than the common shares. Net PN shares form a part of the BOVESPA Index
that groups the 30 most liquid securities on the Market, ON shares do not form a part of that index;
–
At
the
same
time,
they
do
not
present
any
loss
of
value
because
of
a
tag
along
difference
since
Net,
present at level 2 of the BOVESPA Differentiated Corporate Governing Practices, guarantees 100% of
tag
along
for
preferred
shares
–
PN dispersion is greater than 50%
Weighted average price by the daily traded volume of Net preferred shares were analyzed over periods of 1
year, 6 months and 3 months
Operational
Subsidiaries (Net)

52
The economic-financial valuations of the Embrapar Subsidiaries were based on the DCF methodology
Non-leveraged operational cash flow utilized in the DCF valuation method was constituted in the following
manner:
(+) Earnings Before Interest and Taxes (EBIT)
(-) Income Tax and Corporate Contribution based on EBIT
(+) Depreciation and Amortization
(-) Capital Expenditures (investments in fixed assets)
(+ -) Changes in Working Capital
(=) Unleveraged Operating Free Cash Flow of the Business
Discounted Cash Flow Method (DCF)
Components of the
Cash Flow

53
The DCF valuation model calculates the value of a business by discounting future cash flows based on the
WACC
(Weighted
Average
Cost
of
Capital).
WACC
is
determined
by
the
weighted
average
cost
of
debt
and
cost of equity within the optimal capital structure for the Company and is directly related to the risk associated
with future cash flows
WACC is determined by the weighted average cost of equity and debt of the Company. Such costs are
weighted by the respective equity and debt proportions in the Company’s capital structure, in accordance with
the following formula:
D : Value of the total debt of the business
E : Value of Shareholders’
Equity
Re : Cost of Equity
Rd : Cost of Debt* (1-T)
T :    IR and CSLL
Once the WACC was calculated in nominal Dollars and the financial projections were made in nominal Reais.
the free non-leveraged cash flow of the business was converted into nominal Dollars
Discounted Cash Flow Method (DCF)
FCD Method
Weighted Average
Cost of Capital
(WACC)
Rd
E
D
D
Re
E
D
E
WACC

54
The
following
adjustments
to
the
CAPM
model
(Capital
Asset
Pricing
Model)
are
used
to
calculate
the
cost
of
equity of the Company:
Re :
Cost of equity of the Company
Rf :
Risk-free rate of return on investment in the US
Rm -
Rf : Average expected return on the stock market
ß
:
beta
estimated
for
a
business
acting
in
the
Subsidiaries’
industry
Z
:
Additional
risk
factor
for
businesses
that
operate
in
Brazil
(“Country Risk”)
The methodology considered to calculate the cost of equity of the Company was based on data obtained from
companies operating in the same segment in the USA and Europe, to which a country risk premium was added
Cost of the equity capital
Cost of equity
Z
Rf)
-
(Rm
Rf
Re

55
We believe that the best estimate for the risk-free rate of return is the yield of the United States Treasury Bond.
We  considered the 10-year bond since it is the long-term bond with the closest duration to the Brazilian Global
27 bond, which will be used to estimate the country risk of Brazil
The average yield over the last 12 months of the 10-year United States Treasury bond is 4.39% per annum
Risk-Free Rate
Risk-Free Rate
Note: average of the last 12 months prior to April 29, 2006
Source: Bloomberg
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1-year average
4.39%

56
We believe that the best estimate of Brazilian country risk is given by the difference (spread) between (i) the
return
on
the
Global
27
bond
–
the
Brazilian
sovereign
long-term
bond,
denominated
in
U.S.
Dollars
and
(ii)
the return on the 10-year U.S. Treasury bond, since the two have a similar duration.
The graph below shows the behavior of Brazilian country risk over the last twelve months. Given Brazil's
macroeconomic stability and the country risk tendency observed, we consider that a historic series of spreads
over
a
longer
term
has
become
less
applicable
and
we
therefore
utilize
the
average
spread
for
the
last
twelve
months, calculated at 3.75% per annum.
Country Risk
Country Risk
Premium
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1-year average
3.75%
Note: average of the last 12 months prior to April 29, 2006
Source: Bloomberg

57
Beta is a measurement of market risk / system risk / non-diversiable risk. The beta coefficient attempts to indicate
the sensitivity of the price of the stock to the variation in the price of the market portfolio, i.e., a stock
that
has
a
beta
equal
to
2
would
tend
to
rise
2%
when
the
market
rises
1%
That coefficient is calculated by means of a linear regression between a series of variations in the company's
stock price and a series of variations in the price of the market portfolio
In order to estimate the beta, we considered a sample of businesses operating in the Subsidiaries' industry. We
therefore
considered
the
average
of
the
unleveraged
betas
of
the
businesses
in
the
sample
as
a
proxy
for
the
Subsidiaries' betas
In order to make those betas comparable, we took the beta of each business excluding the corresponding degree
of indebtedness, which results in the unleveraged betas
In order to take into account the risk derived from the Subsidiaries capital structure, we calculated the beta of the
companies by means of the following formula:
The leveraged beta considered in the valuations of the Embrapar Subsidiaries were:
–
Embratel: 1.28
–
Star One: 1.02
Beta
Beta
Note: (1)marginal income tax and CSLL rate
T
Equity
Debt
1
1
(1)
unleveraged

58
Market risk premium is the additional return required by investors to compensate for an element of greater
uncertainty
(risk)
in
investments
in
stocks
versus
investments
considered
risk
free
The estimate used for overall market risk is the long-term historic average (1900 to 2005) of the differences
between the return on an index representing the global stock market denominated in Dollars and the return on
an overall index of long-term sovereign bonds of credit risk-free countries
ABN AMRO favors a longer period (since 1900) because that period reflects a more diverse set of economic
environments
such
as
wars,
depressions
and
periods
of
expansion,
that
are
not
satisfactorily
reflected
in
shorter periods
ABN AMRO favors the historic focus rather than the focus on the future due to the fact that it does not believe
that
the
market
risk
premium
is
predictable
within
a
period
of
3
to
4
years.
Since
the
market
risk
premium
is
a
random value, historic data represent a better estimate for the future. The value of the market risk premium
utilized
in
the
valuation
of
the
Embrapar
Subsidiaries
is
5.10%
(that
value
is
the
result
of
the
“Global
Investment
Return
Yearbook
2006”
study
carried
out
by
ABN
AMRO
in
conjunction
with
the
London
Business
School)
Market Risk Premium
Market Risk
Premium

59
The cost of debt is estimated based on the average long term cost observed in capital raising operations by
enterprises with a credit profile similar to those of the Company’s Subsidiaries. Thus the cost of future debt
must represent the cost that the enterprise would pay should it issue long term bonds. That cost is directly
connected to the enterprise’s risk profile
Since interest paid is deductible from income tax and the corporate contribution, we must reduce the cost of
debt
before
taxes
by
the
long
term
income
tax
and
the
corporate
contribution
rate
in
order
to
arrive
at
a
post-tax
cost of debt
The weight assigned to equity in the calculation of the average weighted cost of capital must be based on the
(estimated) market value of the equity and debt, since the cost of capital must reflect the remuneration required
by investors in accordance with the business risk of the enterprise
The target financial leverage (total debt / total capital) used in the valuations of the Embrapar Subsidiaries
were:
–
Embratel: 32.41%
–
Star One: 21.93%
Cost of Debt and the Capital Structure
Cost of the Debt
(cost capital of
third parties)
Capital
Structure

60
The life of a business is theoretically infinite. Nevertheless, we are not able to project future cash flows in a
precise
manner
beyond
a
certain
period.
Therefore,
a
part
of
the
value
of
the
business,
known
as
the
terminal
value, will be generated by the cash flows of the years that follow the last year of the period of projection
The
calculation
of
the
terminal
value
is
adjusted
to
standardize
the
Star
One
Capex.
Each
year,
until
infinity,
the
free cash flow will grow in conformity with its growth rate, which is referred to as the perpetuity growth rate
The financial projections were prepared in nominal Reais and then converted into nominal Dollars in
accordance with the average exchange rates expected for each of the period projected, in accordance with the
table
of
macroeconomic
projections
indicated
on
page
44.
In
that
manner
the
perpetuity
growth
rate
of
free
cash
flows should, coherently, be a rate in nominal Dollars
The nominal rate of growth utilized by ABN AMRO for the perpetuity is 0.61% in nominal Dollars for the
Subsidiaries (excluding Star One), as the company’s main revenues (fixed telephony and long distance) suffer
from low barriers of entrance, specially due to the technological advances, products/services substitutes and
high level of competition
ABN AMRO used a perpetuity growth rate of 3.67% in nominal Dollars for Star One because the company
competes in segments with significant growth potential and entrance barriers that demand high investments
and have several regulatory restrictions
Terminal value and perpetuity growth rate
Terminal value and
perpetuity growth
rate

61
WACC
Weighted Average Capital Cost (WACC)
WACC
11.19%
WACC (nominal US$)
13.33%
Cost of Equity Adjusted for
Country Risk (US$)
3.53%
78.07%
21.93%
Cost of Debt after IR and
CSLL (US$)
Capital Structure:
% of equity
% of third party
0.86
34.00%
28.08%
1.02
Non-leveraged Beta of the Sector
Income Tax
D/E
Leveraged Beta
Star One
11.95%
WACC (nominal US$)
14.65%
Cost of Equity Adjusted for
Country Risk (US$)
6.32%
67.59%
32.41%
Cost of Debt after IR and CSLL
(US$)
Capital Structure:
% of equity
% of third party
0.97
34.00%
47.95%
1.28
Non-leveraged Beta of the Sector
Income Tax
D/E
Leveraged Beta
Embrapar
(including Subsidiaries. but not Star One)
4.39%
5.10%
3.75%
Return on Ten-Year United States Treasury Bond (T-Bond)
Stock Market Risk Premium
Country Risk Premium
Cost of Capital for the Company (US$)

62
6b
Embrapar Valuation
(excluding participation in
Net)

63
Embrapar
Subsidiaries: main operational assumptions
The Valuation of Embrapar is based on: (i) public information about the sector in which the Company Subsidiaries are active; (ii) public
information with regards to macroeconomic parameters where the Company and its Subsidiaries have a relevance; (iii) business plans of
the Company Subsidiaries for the period from 2006 to 2015 prepared and approved by their respective managements; (iv) historical,
financial and operational information about the Company and its Subsidiaries and (v) discussions with the Designated Representatives in
relation
to
past
performance
and
the
expectations
for
the
future
of
the
Company
and
its
Subsidiaries.
Growth
in
national
long
distance
traffic
services
in
line
with
GDP,
mainly
coming
from
cellular
connections,
VIP
phone
and
0800
services
and
a
decrease
in
international
long
distance
traffic
services
as
a
result
of
the
competition
in
relation
to
tariffs
and
a
decrease
in
unit
prices
per minute is expected in long distance as a result of the stimulus of competition
In general terms, the services of the Embrapar Subsidiaries in Data and Internet segments are growing in line with the market
There
is
an
expectation
of
the
introduction
of
VoIP
service
beginning
in
2006
with
a
strong
growth
on
the
basis
of
subscribers
according
to 
information furnished by the Designated Representatives
Interconnection tariffs show a reduction in the years beginning in 2006 as a result of new regulatory developments
Operational expenses are growing as a function of inflation and present no significant improvements in real terms
Beginning in 2006 a biannual concession rate of 2% will be charged on revenues from long distance services
Capex
refers
principally
to
the
expansion
of
local
services,
maintenance
of
infrastructure
for
data
transmission,
internet
services
and
VoIP
services
In relation to Primesys, growth is expected in its activities in line with the GDP and the maintenance of margins
In relation to Star One, accelerated growth of revenue is predicted with respect to broadband Internet services and a greater area of
coverage with the new Q-band satellites
The
costs
of
interconnection
and
of
renting
transponders
is
stabilizing
in
terms
of
percentages
of
net
revenues
Investments in new satellites to replace and maintain the present fleet were considered in the projection
Summary of the Operational Assumptions for the Valuation of Embrapar

64
12,902
12,917
13,312
13,623
14,080
14,565
15,139
15,715
16,336
16,973
26,151
26,918
28,042
29,088
30,713
32,515
34,356
35,905
37,534
39,187
1,964
1,932
1,902
1,908
1,892
1,866
1,886
1,901
1,904
2,034
11,215
12,098
12,829
13,578
14,767
16,058
17,309
18,288
19,267
20,250
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
DLD
ILD
Local services
Traffic (Millions of Minutes)
Growth in local and
national long distance
telephone traffic and
modest drop in
international long distance
telephone traffic
Reduction in national and
international long distance
rates and increase in local
telephone rates
Embrapar: operational variables
Traffic (million of minutes)
Net average tariff (R$ nominal / minute)
0.33
0.32
0.31
0.29
0.27
0.26
0.25
0.24
0.23
0.22
0.30
0.31
0.30
0.29
0.29
0.28
0.28
0.27
0.27
0.26
0.08
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.07
0.08
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
DLD
ILD
Local service
Average Net Rates (nominal R$ / minute)

65
4,874
4,750
4,670
4,479
4,341
4,335
4,299
4,272
4,230
4,189
2,195
2,312
2,410
2,516
2,629
2,784
2,883
3,022
3,264
3,405
1,941
2,117
2,298
2,486
1,401
1,579
1,762
1,234
1,068
899
268
301
331
358
393
428
467
507
549
593
10,673
10,341
9,918
9,590
9,310
8,942
8,754
8,644
8,431
8,235
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Long distance
Data and Internet
Local services
Other services
Revenues for long
distance telephone service
represents the largest part
of Embrapar revenues but
their relative contribution
decreases over the years.
Data transmission.
Internet. local and other
services grow over the
years
Note:
Values
of
net
revenues
consider
the
integral
consolidation
of
Star
One
revenues,
with
the
elimination
of
intercompany
operations
Embrapar: Net Revenues
Composition of Net Revenues (R$ nominal millions)

66
Interconnection costs are
the greatest portion of
Embrapar costs
Personnel and third party
expenses are the greatest
portion of Embrapar
expenses
Embrapar: Costs and Expenses
Composition of Expenses (R$ nominal millions)
Composition of Costs (R$ nominal millions)
Note: Cost and expenses values consider the integral consolidation of Star One receipts, eliminating intercompany operations
691
711
726
741
757
774
793
812
831
851
620
631
638
649
667
684
702
719
737
1,203
2,453
2,538
2,554
2,571
2,610
2,666
2,714
2,777
2,824
2,878
610
1,152
1,207
1,198
1,192
1,224
1,238
1,263
1,274
1,290
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Personal Expenses
Third part services
Others
2,396
2,466
2,451
2,372
2,306
2,417
2,393
2,387
2,501
2,453
774
759
721
684
649
618
587
558
530
503
477
372
479
579
676
877
991
1,111
1,239
1,375
110
20
113
98
84
72
61
55
42
29
3,355
3,469
3,588
3,648
3,721
3,974
4,105
4,266
4,558
4,701
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Interconnection
Data and Internet
Local services
Others

67
The EBITDA margin
remains stable during the
period of the projection
The value observed in 2006
principally reflects
investments in Star One
satellites and investments
for the expansion of local
telephone services
Embrapar: EBITDA and Capex
Note: EBITDA and Capex values consider the integral consolidation of Star One EBITDA and Capex. with the elimination of intercompany operations
Capex (R$ nominal millions)
EBITDA (R$ nominal millions)
EBITDA
2,427
2,424
2,502
2,535
2,611
2,670
2,771
2,875
2,959
3,094
29.5%
28.7%
28.9%
29.0%
29.2%
28.7%
28.9%
29.0%
28.6%
29.0%
0
1,000
2,000
3,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0%
50%
100%
EBITDA margin
1,464
881
864
889
1,054
1,218
1,219
1,068
1,140
1,161
17.8%
10.4%
10.0%
10.2%
11.8%
13.1%
12.7%
10.8%
11.0%
10.9%
0
1,000
2,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0%
50%
100%
Capex
Capex
as % of net revenues

68
Embrapar: Results of Operations and Cash Flows
Note: Simplified financial statements consider the integral consolidation of Star One. with the elimination of intercompany operations
For the perpetuity
calculation it was assumed:
(i) an EBITDA adjustment to
reflect a long term annual
concession rate (1% per
year versus 2% biannual)
and (ii) an average Capex
to reflect the maintenance
and renovation of the
current fleet of Star One
satellites
DRE (R$ nominal millions )
Free Cash Flow  (R$ nominal millions)
Ending on December 31
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Net revenues
8,235
8,431
8,644
8,754
8,942
9,310
9,590
9,918
10,341
10,673
Operational Costs and Expenses
(5,808)
(6,007)
(6,143)
(6,219)
(6,330)
(6,639)
(6,819)
(7,043)
(7,382)
(7,579)
EBITDA
2,427
2,424
2,502
2,535
2,611
2,670
2,771
2,875
2,959
3,094
Margin (%)
29.5%
28.7%
28.9%
29.0%
29.2%
28.7%
28.9%
29.0%
28.6%
29.0%
Earnings before Taxes
880
555
641
715
588
734
918
1,025
1,056
1,221
Net profit
852
532
629
698
570
710
884
966
992
1,142
Ending on December 31
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
EBIT
1,349
1,025
1,126
1,208
1,099
1,254
1,532
1,714
1,731
1,928
Taxes on EBIT (IR and CSLL)
(459)
(348)
(383)
(411)
(374)
(426)
(521)
(583)
(589)
(655)
Depreciation and Amortization
1,078
1,399
1,375
1,327
1,512
1,417
1,239
1,161
1,228
1,166
Capex
(1,464)
(881)
(864)
(889)
(1,054)
(1,218)
(1,219)
(1,068)
(1,140)
(1,161)
Changes in Working Capital
(213)
(83)
(66)
(20)
(91)
(116)
(104)
(111)
(109)
(108)
Free Cash Flow of the Subsidiaries
291
1,112
1,189
1,216
1,092
909
927
1,113
1,121
1,169

69
Notes: (1) Nominal Dollars; (2) ABN AMRO considered the number of shares issued and outstanding by the Company on March 31, 2006. As reported by Company representatives, there were no changes in the number of
shares issued and outstanding by the Company during the period since March 31, 2006
Embrapar
Subsidiaries (ex-Net): Discounted Cash Flow -
Interval
of Value
Sensitivity of the value of Enterprise value
The financial-economic equity value of Embrapar takes into
account its share of 80.01% in Star One and its respective Net
Indebtedness as of March 31, 2006. In the case of Embrapar,
the Net Indebtedness also includes the deduction of the
participation of the minority shareholders in Embratel
The valuation was conducted in nominal Dollars converted into
nominal Reais at the PTAX 800 rate of exchange of R$/US$
2.17 on base date of March 31, 2006
The
number
of
Embrapar
shares
(2)
on
March
31,
2006
was
987,726,487,230 (not including 1,032,167,077 treasury shares
as of March 31, 2006)
General Comments
Sensitivity of the value of Equity value
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
7,477
7,336
7,200
3.67%
0.61%
7,536
7,390
7,251
3.93%
0.86%
7,598
7,448
7,305
WACC
(1)
WACC
(1)
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
5,280
5,138
5,002
3.67%
0.61%
5,338
5,193
5,053
3.93%
0.86%
5,400
5,250
5,107

70
6c
Valuation of the
Participation in Net

71
100,000
60
-
20,000
40,000
60,000
80,000
04/28/2005
06/28/2005
08/28/2005
10/28/2005
12/28/2005
02/28/2006
04/28/2006
0
10
20
30
40
50
PN
ON
Analysis of Changes in the Trading Volume of ON and PN Shares
Daily Trading Volume of PNs versus ONs
Source: Economática
The daily trading volume of
preferred shares is more
than 9,000 times higher
than the volume of
common shares
Quotes
of
Net
preferred
shares
were
adopted
as
market
references
because:
They have greater liquidity than common shares. Net PN shares form a part of the BOVESPA Index
that groups the 30 most liquid securities of the market. ON shares do not participate in that Index.
–
At
the
same
time
they
do
not
present
a
loss
of
value
due
to
a
difference
in
tag
along
rights,
since
Net
guarantees 100%  tag along rights for preferred shares, consistent with level 2 of BOVESPA's
Differentiated Corporate Governance Practices
–
PN dispersion is greater than 50%

72
Analysis of the Evolution of ON and PN Share Prices
Evolution of the Price per Share Adjusted for dividends (R$ per share)
Source: Economática
Preferred and common
shares are generally trade
at similar prices
Price of shares (R$ per share)
PN
ON
Minimum
0.54
0.55
Maximum
1.26
1.19
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
04/28/2005
06/282005
08/28/2005
10/28/2005
12/28/2005
02/28/2006
04/28/2006
PN
ON
Volume
(R$ thousand)
Weighted volume
(thousand)
1 year
31,076
33,264
180 days
38,677
35,120
90 days
40,901
36,000
1.101
1.136
Daily average
Weighted average
(R$ per share)
0.934
Last 90 days

73
Valuation of Participation in Net
ABN AMRO believes that the best reference period to value Net shares corresponds to the 90 days prior to April
29, 2006, for the following reasons:
–
During the past 12 months Net concluded a financial restructuring process that had a significant impact on
the value of its shares
–
Terms
of
the
agreement
with
Embratel
for
offering
joint
services
has
continued
to
evolve
in
recent
months
–
The recovery movement of the market for cable TV continues and the strong expansion of the broadband
residential market in 2006
Period Chosen as Reference
Calculation of the Value of Net
Notes: (1) Corresponds to the average price weighted by the trading volume of PN shares of Net during the last 90 days prior to April 29, 2006; (2) Total number of Net
shares excluding treasury shares on March 31, 2006; (3) Direct and indirect participation (through Empreendimentos) of Embrapar in Net as of March 31, 2006; (4)
Calculated based on the position on March 31, 2006 ; (5) Embrapar participation in GB Empreendimentos as of March 31, 2006
1,666
I=(E-H)
Total
Value
of
Affiliates
Belonging
to Embrapur
0,036
H=(F*G)
Net
debt
of
GB
Empreendimentos
in
proportion
to
Embrapar
ownership
interest
83.00%
G
Embrapar
participation
in
GB
Empreendimentos
(5)
0,044
F
Net
Debt
of
GB
Empreendimentos
(4)
1,666
E=(A*D)
Equity
value
of
Net
held
by
Embrapar
1,466
D
Number
of
shares
held
directly
or
indirectly
by
Embrapar
(millions)
(3)
4,493
C=(A*B)
Equity Value of Net
3,955
B
Total
number
of
shares
of
Net
(millions)
(2)
1.136
A
Price
of
shares
of
Net
considered
in
the
Valuation
(R$ per share)
(1)
Value
in
Millions
of
Reais
(except
when
indicated
to
the
contrary)

74
6d
Embrapar Valuation
(including participation in
Net)

75
Result of the Valuation of Embrapar’s
Subsidiaries and Affiliates
Result of the
Valuation of
Embrapar
Analysis
of
the
Economic
Value
of
the
Affiliates
on
the
basis
of
Market
Value
Analysis of the Economic Value of the Subsidiaries on the basis of DCF
Enterprise value,
excluding Net (R$ millions)
Equity value,
excluding Net (R$ millions
(1)
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
7,477
7,336
7,200
3.67%
0.61%
7,536
7,390
7,251
3.93%
0.86%
7,598
7,448
7,305
WACC
Notes:
(1)
Nominal
Dollars;
(2)
Corresponds
to
the
average
price
weighted
by
the
trading
volume
of
PN
shares
of
Net
during
the
last
90
days
prior
to
April
29,
2006;
(3)
Total
number of Net shares excluding treasury shares as of March 31, 2006; (4) Number of shares held directly or indirectly by Embrapar through GB Empreendimentos as of March 31,
2006; (5) Calculated on the basis of the March 31, 2006 position; (6) Embrapar participation in GB Empreendimentos as of March 31, 2006
Star One
10.94%
11.19%
11.44%
Embrapar
11.70%
11.95%
12.20%
3.42%
0.35%
5,280
5,138
5,002
3.67%
0.61%
5,338
5,193
5,053
3.93%
0.86%
5,400
5,250
5,107
WACC
(1)
Values in million of Reais
(except when indicated to the contrary)
Net
share
price
considered
in
Valuation
(R$ per share)
(2)
A
1.136
Total
number
of
shares
of
Net
(millions)
(3)
B
3,955
Equity value
of
Net
C=(A*B)
4,493
Number
of
shares
held
directly
or
indirectly
by
Embrapar
(millions)
(4)
D
1,466
Equity value
of Net held by Embrapar
E=(A*D)
1,666
Net
Debt
of
GB
Empreendimentos
(5)
F
0.044
Embrapar
participation in GB Empreendimentos
(6)
G
83.00%
Net
Debt
of
GB
Empreendimentos
in
proportion
to
Embrapar
participation
H=(F*G)
0.036
Total value of Subsidiaries belonging to Embrapar
I=(E-H)
1,666

76
Results of the Valuation of Embrapar’s
Subsidiaries and
Affiliates (cont.)
Results of the
Valuation of
Embrapar
Analysis of the Total Economic Value of Embrapar
Notes: (1) The 80.01% share that Embratel holds in Star One has already been considered; (2) Calculated in conformity with the definition of Net Indebtedness described in the
Important Notice on Page 3. The 80.01% Net Debt of Star One is being considered; (3) Calculated on the basis of the average price weighted by the trading volume over the last
90 days of PN shares multiplied by the base Net shares as of March 31, 2006 (3,954,663,665 shares); (4) ABN AMRO considered the number of shares issued by the Company
and in circulation as of March 31, 2006. As reported by Company representatives. there were no changes in the number of shares issued by the Company and in circulation as of
March 31, 2006
Values in million of Reias
(except where indicated otherwise)
Mínimo
-
Máximo
Enterpriese
value of operating Controlled Companies
(1)
A
7,200
7,598
Net debt of Embrapar
Consolidated
(2)
B
2,198
2,198
Equity value of Embrapar
and its Controled
Companies
C=(A-B)
5,002
5,400
Net total Equity Value
D
4,493
4,493
Equity value of Net shares held by Embrapar
(1,466 million shares)
(3)
E
1,666
1,666
Total Equity Value
F=(C+E)
6,668
7,066
Number of Embrapar
shares (million)
(4)
G
987,726
987,726
Price per share (R$ one thousand lot)
F/G
6.75
-
7.15

77
7
Summary of the Valuation of
Embrapar Shares

78
Methodological considerations
The weighted average quotation of a stock is the result of the daily financial volume trades in a specific period, divided
by the number of shares trades in that same period
This
methodology
is
most
applicable
in
cases
where
(i)
necessary
information
(mainly
long-term
projections)
to
make
a
valuation
based
on
the
DCF
method
is
not
available
and
(ii)
the
shares
have
liquidity
(presence
in
Ibovespa)
and
dispersion
(free
float
higher
than
50%)
The value of the company is determined by the expectations of its future results, measured by its capacity for cash
generation and the risk associated with that generation, discounted to present value by an appropriate discount rate
This method captures the growth potential and future profit prospects, adequately reflecting the expected return in light
of
the
country-risk
and
the
risk
intrinsic
to
this
type
of
business;
it
is
also
appropriate
for
adequately
capturing
business
opportunities and for adjustment for extraordinary events
This methodology is used when the company has a business plan
The shareholders’
equity per share value is determined by dividing the net worth of the company, at the date of the
valuation, by its respective share base
This methodology does not necessarily reflect the growth potential or possibilities of future profit, nor the intrinsic risk of
the business
It
may
also
be
distorted
by
the
accounting
policy
adopted
by
the
company
Methodology
Description
Average weighted
price of the shares
Discounted Cash
Flow
Value of the
shareholders’
equity per share

79
Summary of Embrapar Valuations
The value of the shares of
the  Company determined
by ABN AMRO is between
R$ 6.75 per lot of one
thousand shares and R$
7.15 per lot of one
thousand shares
Value per share (R$ per lot of one thousand shares )
5.29
4.83
6.75
7.15
7.59
Value of Shareholders’
Equity
Weighted Average Price of
PN Shares
Weighted Average Price of
ON Shares
Valuation
Range
The base date of the Valuation is May 1, 2006 and is based on the available information as at April 29, 2006
ABN AMRO considers the Free Cash Flow methodology as the most appropriate to define Embrapar’s valuation range
The valuation range varies between R$ 6.75 and R$ 7.15 per thousand shares of Embrapar. The valuation range was calculated based on
the minimum and maximum value of a sensitivity table in which the nominal WACC varies by plus or minus 0.25 % and the nominal perpetuity
growth rate varies by plus or minus 0.25% in real terms
ABN AMRO used a sensitivity table for the definition of a range of value as the WACC and the perpetuity growth rate are the factors that
impact
the
company's
value
and
the
factors
that
are
not
a
result
of
a
business
plan

80
7
Glossary

81
Glossary
We include the glossary below in order to facilitate the understanding of this document by persons unfamiliar
with the methodology of valuing enterprises by discounted cash flow methodology. In this manner, the
clarification
given
for
each
term
was
couched
in
didactic
language
to
facilitate
the
understanding
of
the
concepts
utilized
Beta:
is a measure of market risk / system risk / non-diversifiable risk. The Beta coefficient indicates the
sensitivity of the stock price to changes in the price of the market portfolio. The index is measured by means of
a linear regression between a series of variations in the price of the enterprise's stock and a series of variations
in the price of the market portfolio
Capital Asset Pricing Model (CAPM):
The CAPM model is utilized to calculate the Cost of the Company's
Capital or the Cost of the Shareholder's Equity. The model follows the financial premise of risk and return, so
that the greater the risk, the greater the return on investment required by the shareholder. The calculation
considers the beta, the risk-free rate and the market premium
Capital Expenditures (Capex):
investments in fixed assets
Cost
of
Equity:
The
cost
of
equity
is
the
return
required
by
the
shareholder
in
regard
to
the
capital
invested.
The
calculation
considers
that
a
specific
asset
must
pay
the
invester
the
cost
of
opportunity
plus
a
risk
premium
Cost of Debt:
This is a measure of the cost associated with capital that comes from third parties in the form of
loans, financing and market funding, among others
Weighted
Average
Cost
of
Capital
(WACC):
This
is
a
measure
of
the
cost
of
a
company’s
capital.
WACC
is
determined by a weighted average on the basis of the long term capital structure, the costs of debt and equity. 
It is directly related to the risk associated with future cash flows

82
Glossary (cont.)
Dispersion:
free
float
greater
than
50%
of
the
class
of
share
analyzed
Dollar:
United States of America Dollar
DTH:
Direct-To-Home Technology
“Earnings
Before
Interests,
Taxes,
Depreciation
and
Amortization”
(EBITDA):
These
are
the
operational
earnings
generated
by
the
company
that
effectively
generate
cash
for
the
company,
thus
the
calculation
of
EBITDA considers only the expenses that generate outflows of cash
“Earnings
Before
Interests
and
Taxes”
(EBIT):
These
are
the
operational
earnings
generated
by
the
company,
i.e.,
the
EBITDA
after
the
expenses
of
depreciation
and
amortization
have
been
deducted
“Enterprise
Value”:
company
value
calculated
by
summing
the
market
value
(value
to
the
shareholder)
to
the
net debt
“Equity
Value”:
The value of the shares of the business for the shareholder
Operational
Cash
Flow:
Operational
cash
flow
only
takes
into
consideration
revenues
and
expenses
actually
received
or
disbursed
as
the
result
of
company
operations.
Thus
financial
receipts
and
expenses
and
other
non-
operational items are not considered in the calculation
“Free
float”:
Percentage
of
shares
in
circulation
divided
by
the
total
capital
of
the
company
Liquidity:
In
the
context
of
this
valuation,
liquidity
refers
to
the
shares
that
form
a
part
of
the
BOVESPA
Index
MDS:
Multipoint
Distribution
System
technology

83
Glossary (cont.)
Market
Risk
Premium:
market
risk
premium
is
the
additional
return
that
investers
require
to
compensate
for
the
greater
element
of
uncertainty
(risk)
in
investment
in
stocks
as
opposed
to
risk-free
investments
Country
Risk:
This
is
the
premium
paid
for
the
political
uncertainty
and
instability
of
a
specific
country.
A
method frequently utilized to estimate this premium is the difference (spread) between the sovereign securities
of the country in question and the sovereign bonds of the U.S.A.
“Tag
along”:
the
new
Sociedades
Anônimas
Law
grants
the
minority
common
shareholder
the
right
to
receive,
at least, 80% of the value paid by the controlling shareholder in case of a sale of a controlling stake (tag along)
Risk Free Rate:
This is the interest rate paid for a risk-free asset. In practice, U.S.A. Treasury Bonds are
utilized as a parameter for risk free interest rates
Terminal Value:
Considering that, in theory, the life of a company is infinite and that it is not possible to
precisely project future cash flows beyond a certain period, a part of the company's value will be generated by
cash
flows
in
years
subsequent
to
the
last
year
of
the
period
of
the
projection.
That
estimate
of
value
is
called
the
terminal
value.
Determination
of
the
terminal
value
is
based
on
the
principle
that
in
the
long
run
the
company will reach its stage of maturity and that it must then grow at a constant rate
VoIP:
Voice over Internet Protocol technology
VPL:
Present líquid value

Neither Teléfonos de México, S.A. de C.V. nor any of its affiliates has commenced the tender offer to which this communication relates. Shareholders of Embratel Participações S.A. are advised to read the Tender Offer Statement, the Offer to Purchase and the other documents relating to the tender offer that are filed with the SEC when they become available, because they will contain important information. Shareholders of Embratel Participações S.A. may obtain copies of these documents free of charge, when they become available, at the SEC’s website at www.sec.gov or from the Information Agent to be appointed in connection with the tender offer.