Nov. 10 (Bloomberg) -- Telefonica SA Chairman Cesar Alierta is ready to put down 11 times profit for Brazilian phone company GVT (Holding) SA. He was less generous with Germany’s Hansenet Telekommunikation GmbH.

The multiple Alierta is willing to pay for GVT is three times what he agreed to shell out for Hansenet last week, as Telefonica seeks to deepen its presence in Brazil, its second- biggest market after Spain, and ward off rival Vivendi SA. He’s also betting on Latin America’s largest economy’s growth.

“Brazil has resources, population growth, good governance with Lula, many people moving into the middle class, all the key buzzwords,” said Andy Lynch, who manages $1.8 billion at Schroders Investment Management Ltd. in London and holds Telefonica shares. “Growth in the competitive and fully penetrated German market is very limited.”

Telefonica, like Vivendi is chasing after an asset in a country with annual economic expansion of more than 5 percent in each of the past two years compared with an average of 1.9 percent in Germany. The companies, both reporting third-quarter results this week, are scrambling for a bigger share in emerging markets as growth prospects in Old Europe diminish.

Madrid-based Telefonica, Europe’s second-largest phone company, raised its offer for GVT last week by 5.2 percent to 2.7 billion euros ($4 billion), pre-empting a counteroffer from Vivendi after already having topped the French company’s bid. Vivendi’s offer for GVT of $3 billion was last month trounced by Telefonica’s initial $3.7 billion bid.

Alierta paid more than nine times 2005 earnings before interest, taxes, depreciation and amortization for O2 Plc. The 17.7 billion-pound ($29 billion) buy is Telefonica’s largest.

Hansenet Multiples

Telefonica declines to comment on its acquisition prices, spokesman Miguel Angel Garzon said.

The rush for a bigger piece of the Brazilian market comes as the companies’ sales slide. Telefonica is expected to report a 5.1 percent drop in third-quarter sales to 14.2 billion euros on Nov. 12, according to the average of 14 estimates in a Bloomberg survey. On the same day, Vivendi is set to report that its third-quarter revenue may have fallen 1.1 percent to 6.4 billion euros, the average of five analysts’ estimates shows.

The Spanish company is offering to pay 11 times GVT’s estimated 2009 Ebitda. By contrast, Telefonica bought Hansenet on Nov. 5 from parent company Telecom Italia SpA for 900 million euros, or 3.7 times the estimate for Ebitda for 2009.

“Brazil may well be the world’s most attractive market right now,” said Juan Jose Figares, chief analyst at Link Securities. “European markets are mature and saturated.”

Valuation Differential

The multiple for Hansenet is based on a full-year forecast for Ebitda at the German broadband provider of about 246 million euros, or two times what it generated in the first half, said Luis Padron, a Madrid-based analyst at BNP Paribas Fortis.

GVT will generate the equivalent of 246 million euros in Ebitda this year, according to a Bloomberg survey.

“The difference in valuation has to do with the growth potential,” said Francisco Salvador, head of institutional sales for continental Europe at Iberian Equities AV in Madrid.

Alierta is not the only one determined to grow in Brazil. Banco Santander SA, which has 21 million customers in Brazil and 12 percent of the nation’s lending market, aims to increase its $28 billion investment in the country, Chairman Emilio Botin said last week in London.

Sao Paulo will become a major financial center, “just like the City of London, Frankfurt and New York,” Botin said.

Brazilian Presence

Telefonica offers fixed-phone lines and Internet services in Sao Paulo, the country’s richest state, while GVT operates in the country’s south. Telefonica and Portugal Telecom SGPS SA also jointly own Vivo Participacoes SA, Brazil’s largest mobile- phone company, which last week said third-quarter profit more than doubled.

If the Spanish company succeeds in buying GVT, an operator founded by Chief Executive Officer Amos Genish, a 49-year-old Israeli, it will be taking over Brazil’s fourth-biggest high- speed Internet provider, with a 15,000-kilometer (9,300-mile) fiber-optic network. GVT, controlled by Global Village Telecom (Holland) BV and Swarth Group, emerged during Brazil’s privatization of its telephone services at end of the 1990s.

GVT sales are estimated to grow 24 percent this year and 26 percent in 2010, according to the average of 12 analyst estimates in a Bloomberg survey. Hansenet’s nine-month revenue fell 4.6 percent from a year earlier.

Growth Prospects

Anatel, Brazil’s telecommunications agency, will vote Nov. 12 on Telefonica’s preliminary request to buy GVT, Antonio Carlos Valente, the head of Telefonica’s Brazil unit, said in Brasilia today. Sao Paulo’s Federal Prosecutor also opened a five-day public consultation into the possible purchase.

Brazil’s economy expanded 5.1 in 2008 and is set to contract 0.7 percent this year, according to the International Monetary Fund. Brazilian President Inacio Lula da Silva has led the country since January, 2003.

Germany’s gross domestic product last year rose 1.2 percent and is expected to shrink 5.3 percent this year, according to the IMF.

“The growth prospects in Germany are very limited,” said Juan Carlos Acitores, who helps oversee about $20 billion in assets at Ahorro Corporacion Gestion in Madrid, including Telefonica shares.

The Hansenet purchase gave Telefonica 2.2 million broadband customers in Germany. Telefonica said that combined with its existing operations in Germany, the company will have about 5 billion euros in annual sales.

To contact the reporters on this story: Paul Tobin at ptobin@bloomberg.net

Last Updated: November 10, 2009 11:37 EST