Portugal Uses Golden Share to Block Telefonica's Vivo Bid
Portugal uses golden share to block Telefonica vivo bid
Mario Proenca/Bloomberg
Prime minister of Portugal Jose Socrates.
Prime minister of Portugal Jose Socrates. Photographer: Mario Proenca/Bloomberg
Telefonica offer blocked by Portugal
Jonathan Fickies/Bloomberg
The move is also a setback for Telefonica Chairman Cesar Alierta, who had wanted to combine Vivo’s mobile-phone network with Telecomunicacoes de Sao Paulo SA or Telesp.
The move is also a setback for Telefonica Chairman Cesar Alierta, who had wanted to combine Vivo’s mobile-phone network with Telecomunicacoes de Sao Paulo SA or Telesp. Photographer: Jonathan Fickies/Bloomberg
The Portuguese government unexpectedly used its veto power to block Telefonica SA’s 7.15 billion-euro ($8.72 billion) bid for Portugal Telecom SGPS SA’s stake in Brazil’s largest mobile-phone company.
Telefonica’s sweetened offer for Portugal Telecom’s stake in their 50-50 venture Brasilcel NV, which owns 60 percent of Vivo Participacoes SA, had been accepted by 74 percent of the investors present at a shareholders’ meeting today in Lisbon. Portugal Telecom had said the Vivo bid was not a “golden share” issue.
“This is an astonishing outcome,” said Robin Bienenstock, an analyst at Sanford C Bernstein in London. “It would now appear that the management of Portugal Telecom is at odds with the Portuguese government.”
With the action, Portugal Prime Minister Jose Socrates is overruling investors for a Portuguese-owned asset he has characterized as “strategic.” The move is also a setback in Latin America’s largest economy for Telefonica Chairman Cesar Alierta, who had wanted to combine Vivo’s mobile-phone network with Telecomunicacoes de Sao Paulo SA, or Telesp, the Spanish company’s fixed-line unit in Brazil.
The unprecedented use by the government of special powers at Portugal Telecom to impede a transaction comes after last week Socrates asked state-owned lender Caixa Geral de Depositos SA, with 7.3 percent of the company, to reject the bid.
National Interests
“This offer did not account for the strategic interests that Vivo represents for Portugal Telecom,” Socrates said today in comments broadcast by television channel SIC Noticias. “The golden share is there to be used when necessary. When the government speaks, it is interpreting the country’s interests and the national interests.”
On July 8, the European Court of Justice in Luxembourg is scheduled to rule on Portugal’s veto powers at the country’s largest phone company. Advocate General Paolo Mengozzi recommended canceling the privileged rights in a non-binding advisory opinion issued in December.
“Investors have been ignored,” said Francisco Salvador, co-strategist at Iberian Equities in Madrid. “This will erode confidence in Portuguese companies.”
Telefonica declined to comment on its plan of action following the meeting.
Telefonica shares added less than 1 percent to 15.26 euros in Madrid. Portugal Telecom shares tumbled 1.5 percent to 8.18 euros in Lisbon.
Raised Bid
Telefonica and Portugal Telecom 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.
Telefonica increased its bid for a second time today from the 6.5 billion euros it had offered on June 1, after its initial offer of 5.7 billion euros was unanimously rejected by Portugal Telecom’s board. The latest bid valued Vivo at 11 times enterprise value to earnings before taxes, interest, depreciation and amortization, double the 5.72 average for the Brazilian company’s peers, according to Bloomberg data.
Portugal Telecom’s board had said the second bid of 6.5 billion euros did “not reflect the strategic value of this asset for Telefonica.”
Fixing Brazil
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.
Portugal Telecom this month said it can provide “no assurance” that “similar value will be delivered to shareholders for Vivo” should the bid fail. In regulatory filings it said the stake sale was not a golden-share issue.
For Telefonica, which faces rivals Vivendi SA and America Movil, controlled by Mexican billionaire Carlos Slim, seeing the deal through was critical to bolster its Brazilian unit Telesp, whose first-quarter sales fell 1.4 percent in local-currency terms. Telefonica estimated that the Vivo-Telesp combination can generate 2.8 billion euros in savings.
Last year, Vivendi outbid the Spanish company in a takeover battle for phone company GVT (Holding) SA.
Telefonica’s offer for Vivo followed America Movil’s $23 billion plan, announced in January, to take over Telmex Internacional SAB to combine its wireless and land-line operations in South America. Telmex Internacional, like America Movil, is controlled by Slim.
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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