Telefonica Vivo Bid Success May Rest With Portuguese Professor
Portugal Telecom's mobile unit headquarters stand in Lisbon. Photographer: Vanda de Mello/Bloomberg
The success of Telefonica SA’s 6.5 billion-euro ($8.1 billion) bid for Portugal Telecom SGPS SA’s stake in their Brazilian joint venture may hinge on the decision of a university professor.
Antonio Menezes Cordeiro, a law professor at the University of Lisbon, will on June 30 chair a Portugal Telecom shareholders meeting on Telefonica’s offer for 50 percent in the company that controls Vivo Participacoes SA, Brazil’s biggest wireless company. Investors can start voting electronically from today.
Menezes Cordeiro will decide if Telefonica, Portugal Telecom’s largest shareholder, can cast a vote or whether its stake represents a conflict of interest. Blocking the Spanish company, which owns 10 percent, would reduce the chance of a takeover and raise pressure on Telefonica to sweeten its offer.
“If Telefonica isn’t allowed to vote, it makes things much harder,” said Pedro Pinto Oliveira, at Oporto, Portugal-based Banco BPI. “I don’t expect the chairman to allow Telefonica to vote, therefore I believe it will have to raise the offer.”
According to Portuguese law, a shareholder can’t vote on issues involving a “relation,” existing or to be created, between the company and that shareholder. The law is aimed at avoiding conflicts of interest, lawyers said.
Portugal Telecom, which rejected an initial 5.7 billion- euro bid without a shareholders vote, said the revised offer “does not reflect the strategic value of this asset for Telefonica.” Brasilcel NV, which owns 60 percent of Vivo, is equally held by Telefonica and Portugal Telecom. Vivo has 30 percent of Brazil’s 179 million wireless subscriptions.
Telefonica’s Strategy
Madrid-based Telefonica, which called its first offer “fair, full and final,” wants control of Vivo to merge it with Telecomunicacoes de Sao Paulo SA, or Telesp, its fixed-line unit in Brazil. It founded the venture with Portugal Telecom in 2001.
Analysts including JPMorgan Cazenove’s Daniel Morris and Banif Investment Bank’s Teresa Martinho said June 9 Telefonica may to have raise its bid by another 500 million euros.
Telefonica climbed 1.8 percent to 16.49 euros as of 2:56 p.m. in Madrid, while Portugal Telecom added 0.4 percent to 8.87 euros in Lisbon. Portugal Telecom shares have gained 37 percent since the company rejected the first offer on May 10. Telefonica shares have added 7.5 percent in the period.
Menezes Cordeiro declined to comment, as did Telefonica. Portugal Telecom said any decision on whether the Spanish company can vote will be made by the chairman.
“The chairman has the power to decide as he pleases within the limits of the law,” said Joao Caiado Guerreiro, a corporate lawyer at Lisbon-based Franco Caiado Guerreiro e Associados. He doesn’t expect Telefonica to be allowed to vote.
Sonaecom Bid
Menezes Cordeiro, 56, who has been practicing law for three decades, allowed shareholder Sonaecom SGPS SA to vote at a Portugal Telecom meeting in 2007 on a proposal to overturn limits to shareholder rights -- effectively a takeover defense.
The vote came as Sonaecom made a hostile bid for the Lisbon-based phone company. The proposal was defeated, and the bid by Sonaecom, which owned about 1 percent of the Portuguese company, failed.
Sonaecom was allowed to vote at the 2007 meeting because, although indirectly linked to the proposal, the vote broadly concerned shareholders’ voting rights rather than the bid itself, they said. About 66 percent of voting rights were present, the largest-ever for the company.
For the June 30 Telefonica-bid vote, a simple majority is sufficient and there is no quorum requirement. Between today and June 25, shareholders can vote electronically.
Shareholder Structure
Telefonica would be voting on an offer in which it has a direct interest, said Caiado Guerreiro. “I think there is clearly a conflict of interests,” he said.
Some analysts said blocking the voting rights of the biggest shareholder is difficult to justify.
“It’s hard to understand why the main shareholder of a company cannot vote at a meeting,” said Juan Jose Figares, chief analyst at Link Securities in Madrid.
Domestic investors of Portugal Telecom with board representation, plus local group Controlinveste Finance International SA, control about 26 percent of the stock.
Even if Telefonica is allowed to vote, it may be a close call, Pinto Oliveira at BPI said.
About 36 percent of Portugal Telecom is held by Portuguese investors, according the company’s website. U.S. holders own 23 percent, 21 percent is owned by investors based in the U.K. and Ireland and 19 percent by shareholders in the rest of Europe.
‘Clearly No’
Institutional Shareholder Services, the influential group that advises investors, recommended June 14 that Portugal Telecom shareholders accept Telefonica’s offer. On June 18, Proxinvest, another shareholder advisory service, recommended that the bid be rejected.
In Portugal, opposition to the bid has gone beyond the boardroom. Prime Minister Jose Socrates said May 27 that Portugal Telecom’s stake in Vivo was “strategic.”
Portugal Telecom relies on Brazil for growth, with sales from the South American country rising 27 percent in the first quarter, while revenue at home fell 3.6 percent.
Portugal Telecom investor Ongoing Strategy Investments SGPS SA, which owns a 6.8 percent stake in the Portuguese company and has board representation, plans to vote against the offer.
“At this price, my answer is clearly no,” Chairman Nuno Vasconcellos said in an interview on June 14.
The price is not sufficient, Jose Maria Espirito Santo Ricciardi, chief executive officer of Banco Espirito Santo SA’s investment banking unit, told Diario Economico last week. Banco Espirito Santo owns about 8 percent of the stock.
To contact the reporters on this story: Anabela Reis in Lisbon at areis1@bloomberg.net; Paul Tobin in Madrid at ptobin@bloomberg.net
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