Telefonica Raises Bid for Portugal Telecom Vivo Stake

Telefonica SA raised its bid a second time for Portugal Telecom SGPS SA’s stake in Brazil’s largest mobile-phone operator, offering 10 percent more hours before the Portuguese company’s shareholders vote on the deal.

The increased bid of 7.15 billion euros ($8.72 billion) was announced by Lisbon-based Portugal Telecom in a regulatory filing. Telefonica, co-owner with Portugal Telecom of the venture that controls Brazil’s Vivo Participacoes SA, had already boosted its offer by 14 percent to 6.5 billion euros on June 1 to gain support from the shareholders.

“It should be enough of an incentive for the Portugal Telecom shareholders to accept the bid,” said Peter Lyons, a New York-based independent analyst who has followed Vivo for more than three years. “It’s a token gesture to the Portugal Telecom shareholders.”

Telefonica, which had said its first 5.7 billion-euro offer “fair, full and final,” wants to merge Vivo with its fixed- line unit in Brazil, Telecomunicacoes de Sao Paulo SA, or Telesp, to cut costs and offer packages of home-phone and wireless service. The Spanish company’s 50-50 venture with Portugal Telecom, Brasilcel NV, was created in 2001 and owns 60 percent of Vivo.

Both companies have sought growth in Brazil as markets at home cooled. Vivo had 30 percent of Brazil’s 179 million wireless subscriptions at the end of March, according to Anatel, the country’s phone regulator. Brazil is growing at the fastest pace in more than two decades even as European demand slows.

Photographer: Jonathan Fickies/Bloomberg

Telefonica SA Chairman and CEO Cesar Alierta speaks during an interview in New York. Close

Telefonica SA Chairman and CEO Cesar Alierta speaks during an interview in New York.

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Photographer: Jonathan Fickies/Bloomberg

Telefonica SA Chairman and CEO Cesar Alierta speaks during an interview in New York.

Portugal Telecom jumped as much as 8.8 percent to 9.03 euros in Lisbon and traded at 8.76 euros at 8:39 a.m. local time. Telefonica advanced 0.4 percent to 15.18 euros.

Wireless, Land Lines

The increased offer boosts the chance of shareholder approval of the sale to 70 percent from 50 percent, Lyons said. Portugal Telecom officials weren’t immediately available for comment.

Telefonica’s offer follows America Movil’s $23 billion takeover this month of Telmex Internacional SAB to combine its wireless and land-line operations in South America. America Movil and Telmex Internacional are controlled by Mexican billionaire Carlos Slim.

Telefonica’s Brazilian unit Telesp’s first-quarter sales fell 1.4 percent in local-currency terms.

Portugal Telecom’s board unanimously rejected Telefonica’s first offer and said the revised 6.5 billion-euro bid didn’t reflect the “strategic value of the asset for Telefonica.” The offer is scheduled to be voted on by Portugal Telecom shareholders in Lisbon today.

Strategic Asset

Portugal Telecom investor Ongoing Strategy Investments SGPS SA, which owns a 6.8 percent stake in the Portuguese company and has board representation, said on June 14 it planned to vote against the 6.5 billion-euro offer at the meeting.

Prime Minister Jose Socrates said June 25 he had told state-owned Caixa Geral de Depositos to vote against the offer.

Portugal Telecom has relied on Brazil for growth, with sales from the Latin American country rising 27 percent in the first quarter, while revenue at home fell 3.6 percent. Since 2006, Vivo has overtaken the fixed-line unit as the company’s biggest revenue contributor, accounting for half of sales in the first quarter.

Domestic investors of Portugal Telecom with board representation, plus local group Controlinveste Finance International SA, control about 26 percent of the stock.

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net.

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