Telefonica Close to Gaining Control of Vivo After Raised Bid
Telefonica SA raised its offer for Portugal Telecom SGPS SA’s stake in a venture that controls Photographer: Denis Doyle/Bloomberg
June 2 (Bloomberg) -- Christopher Nicholson, senior analyst at Oraca Ltd., talks with Bloomberg's Andrea Catherwood about Telefonica's increased bid to gain control of Vivo Participacoes SA, Brazil's largest wireless opertaor. Telefonica is aiming to pay 6.5 billion euros ($7.9 billion) for the stake in the venture owned by Portugal Telecom SGPS SA. The directors on May 10 unanimously rejected the initial 5.7 billion-euro bid. (Source: Bloomberg)
Telefonica SA moved closer to taking charge of Brazil’s largest wireless operator after raising the bid for Portugal Telecom SGPS SA’s stake in the venture that controls it by 14 percent to 6.5 billion euros ($7.9 billion).
Portugal Telecom said late yesterday that it’s calling a shareholders’ meeting to vote on the revised offer and appointed three top executives to negotiate with Telefonica. The Lisbon- based company’s board said the new offer “does not reflect the strategic value of the asset for Telefonica.” The directors on May 10 unanimously rejected the initial 5.7 billion-euro bid.
“The offer is high enough to entice Portugal Telecom’s institutional investors to accept the offer and low enough to allow Telefonica to acquire the asset at a level that leaves significant potential upside,” Georgios Ierodiaconou, an analyst at ING Groep NV, said today in a note. “We do not rule out a sweetener ahead of the extraordinary general meeting.”
Telefonica Chairman Cesar Alierta needs to control Vivo Participacoes SA as competition intensifies in the Brazilian mobile-phone market, South America’s largest. Vivendi SA and Mexican billionaire Carlos Slim-controlled America Movil SAB are rapidly expanding in the country. Alierta aims to combine Vivo with Telecomunicacoes de Sao Paulo SA, or Telesp, Telefonica’s Brazilian fixed-line unit, whose sales have slid.
The Spanish company is seeking growth in Brazil as demand slows in the more-mature markets in Europe. Brazil’s economy is forecast to grow this year by the most in more than two decades, expanding 6.5 percent after shrinking in 2009, according to a central bank survey of about 100 economists published in May.
‘Can’t Refuse’
Portugal Telecom rose 1.5 percent to 8.59 euros in Lisbon. Telefonica gained 0.8 percent to 15.74 euros in Madrid.
“We have no doubt that Portugal Telecom shareholders will accept the offer,” Alierta told investors today at Telefonica’s annual meeting in Madrid. The bid includes “an attractive price level and also deals with other aspects.”
Under terms offered by Telefonica, if Portugal Telecom accepts the revised bid, the Spanish company will grant it a call option on the 10 percent stake it owns in the Portuguese operator. The offer for control of Vivo can be executed “immediately” or at Portugal Telecom’s discretion during a three-year period, Telefonica said in a filing.
“Telefonica makes an offer Portugal Telecom cannot refuse,” Sanford C Bernstein Ltd. analysts including Robin Bienenstock said in a note today.
Telefonica is bidding for full control of Brasilcel NV, its unlisted 50-50 joint venture with Portugal Telecom that owns about 60 percent of Vivo.
Telefonica’s Interest
The higher bid boosts the offer to other holders of Vivo voting shares, which will rise to 80 percent of the value assigned to Portugal Telecom’s Vivo voting shares. The bid would be at about 100 reais per share, Bernstein analysts said.
“Taking this matter to an EGM increases strongly the likelihood of a bid acceptance,” Pedro Pinto Oliveira, an analyst at Oporto, Portugal-based Banco BPI SA, wrote in a note.
Telefonica’s offer follows America Movil’s $24.5 billion plan, announced in January, to take over Telmex Internacional SAB to combine its wireless and land-line operations in South America. America Movil and Telmex Internacional are both controlled by Mexico’s Slim.
It also comes after Vivendi last year outbid Telefonica in a takeover battle for Brazilian phone company GVT (Holding) SA.
Telefonica CEO Alierta first publicly voiced his interest in taking over Vivo in 2006, seeking to combine it with the company’s Telesp fixed-line unit, which offers home-phone and Internet services in the state of Sao Paulo.
Telecom Italia
Telesp posted a 1.4 percent drop in first-quarter sales in local-currency terms and a 14 percent slump in operating income before depreciation and amortization.
Winning control of Vivo would eliminate the need for Telefonica to pursue other options, including a takeover of Telecom Italia SpA’s Brazilian unit Tim Participacoes SA.
“For Telecom Italia this may be viewed as a short-term negative as the M&A premium that some may have attached the share price near term will now no doubt fade,” Bernstein analysts said. “There are however other companies potentially interested in purchasing TIM Brasil.”
Some Portugal Telecom investors, who oppose Telefonica’s efforts, said the Portuguese company will need a presence in Brazil. Jose Maria Espirito Santo Ricciardi, chief executive officer of Banco Espirito Santo’s investment banking unit, said on May 27 that the Portuguese operator will either need to buy Telefonica out of Vivo or find another company in Brazil.
For Portugal Telecom
Vivo has driven revenue growth for Portugal Telecom as sales in Europe have slowed and competition increased at home. Its Brazilian sales rose 4.1 percent to 3.2 billion euros last year, while revenue from Portugal declined 1.9 percent. Vivo had 30 percent of Brazil’s 179 million wireless subscriptions at the end of March, according to phone regulator Anatel.
Portugal Telecom may try to buy a stake in Tele Norte Leste Participacoes SA, known as Oi, if it exits Vivo, Maria Tereza Azevedo, a telecommunications analyst at Link Corretora in Sao Paulo, said on May 31.
Brazil’s wireless market will expand 11 percent to 193 million subscribers this year, down from 15 percent growth in 2009, according to a Banco Santander SA research note.
Credit Suisse Group AG and UBS AG were hired by Telefonica on its plans to take control of Vivo, while Bank of America Merrill Lynch is working for Portugal Telecom, bankers familiar with the matter said.
To contact the reporters on this story: Paul Tobin in Madrid at ptobin@bloomberg.net; Anabela Reis at areis1@bloomberg.net
Rate These Stories
Rate this Page