Telefonica SA (TEF) offered to buy Vivendi SA’s Brazilian Internet-provider unit GVT for 6.7 billion euros ($9 billion) to expand in a fast-growing broadband market and address antitrust concerns in the country.
Vivendi would get 11.96 billion reais ($5.3 billion) in cash and shares in Telefonica’s Brazil unit, Madrid-based Telefonica, Europe’s second-largest phone company, said today. Vivendi would also get a right to buy a stake of about 8 percent in Telecom Italia SpA (TIT) from Telefonica, a transaction that would reduce Telefonica’s clout in Brazil’s wireless market.
Demand for video streaming is boosting revenue at Brazil’s Web-access providers, while Telefonica’s sales are dropping in Spain amid intense competition. The company, Brazil’s largest wireless provider, is also grappling with how to comply with December regulatory rulings that called into question its role as a shareholder of Telecom Italia, the owner of the No. 2 mobile carrier in the country.
“This is an absolutely sensible move from Telefonica,” said Ralph Szymczak, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany. “They’re trying to get out of Italy and would strengthen their Brazilian business through a merger with GVT.”
Telefonica shares fell 1.7 percent to 11.79 euros at the close in Madrid today, valuing the company at 53.6 billion euros. Vivendi (VIV) rose 3.6 percent to 19.59 euros in Paris, giving the company a market capitalization of 26.4 billion euros.
Vivendi said in a statement that none of its units are for sale, though its board will consider Telefonica’s offer at its next meeting. Vivendi’s board is scheduled to meet at the end of this month, in conjunction with the company’s Aug. 28 earnings. A Vivendi representative declined to comment beyond the company’s press release.
Other companies interested in GVT could include Telecom Italia, whose Chief Executive Officer Marco Patuano was in favor of expanding its Brazilian unit, Tim Participacoes SA, through an eventual merger with GVT, people familiar with the plan said in May.
A spokesman for Telecom Italia declined to comment on Telefonica’s offer for GVT. The Italian company’s shares fell 4.6 percent to 82.5 cents in Milan, and Tim sank 6.4 percent to 11.48 reais at 12:58 p.m. in Sao Paulo.
“This aggressive move by Telefonica in Brazil could create a new stronger competitor for Tim Brasil,” said Andrea Giuricin, a professor at Milan’s Bicocca University who specializes in media and telecommunications. “It’s very hard for Tim Brasil to match this offer.”
Telecom Italia had its debt cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to reverse falling sales. Its net debt amounted to about $37 billion at the end of last year.
Other top Brazilian phone carriers also dropped in trading. Oi SA slid 4.8 percent to 1.38 reais in Sao Paulo, and America Movil SAB fell 1.5 percent to 15.44 pesos in Mexico City.
GVT could attract interest from AT&T Inc. after the U.S. carrier agreed to acquire DirecTV, which has more than 5 million pay-TV subscribers in Brazil, Deutsche Bank AG analysts said in a note in May. An AT&T spokesman in London declined to comment on the company’s interest in a bid for GVT.
Vivendi halted a process to sell GVT last year as it couldn’t agree on a price with suitors including DirecTV, the largest U.S. satellite-TV provider, and a group of private-equity firms including KKR & Co. and Apax Partners LLP, people with knowledge of the matter said then. Vivendi was asking 8 billion euros for GVT, the people had said.
At the time, Vivendi was in the midst of a strategy revamp and was pressed by investors to sell assets. Since then, it has announced more than $30 billion of asset sales, refocused its business on media operations and unveiled plans to return cash to shareholders, putting Vivendi in a more comfortable position should it want to sell more assets.
Vivendi’s statement today implies it would be willing to sell GVT, and that it is waiting for any counterbids, analysts at Liberum said today in a note. Liberum had valued GVT at 5.8 billion euros. Espirito Santo had estimated it at 4.8 billion euros, Kepler Cheuvreux at more than 5 billion euros, and Macquarie at 6.9 billion euros.
The bid consists of 60 percent cash and a 12 percent stake for Vivendi in Telefonica’s Brazilian unit Vivo, according to the French media company. The offer expires on Sept. 3 unless Telefonica decides to extend it.
Telefonica lost out to Vivendi in an initial attempt to buy GVT in 2009. At the time, Vivendi’s offer of $4.18 billion topped the $4 billion bid made by its Spanish rival.
GVT, which emerged in 1999 during the privatization of Brazil’s telecommunications industry, had 12 percent of the country’s broadband market and about 9 percent of its landline market in 2013, according to Vivendi’s annual report.
Sales at GVT expanded 13 percent to 405 million euros in the first quarter when excluding changes in exchange rates. In contrast, Telefonica reported a 12 percent drop in quarterly sales last week, weighed down by a continuing slump in its largest market Spain.
Extracting itself from Italy may help Telefonica allay concerns voiced by Brazilian regulatory agency Cade, which last year said the Spanish company must completely exit Telecom Italia if it wants to remain in control of its own unit in Brazil. A sale of a stake of about 8 percent in Telecom Italia would bring Telefonica’s holding in Italy’s largest phone company close to zero.
While Vivendi has been exiting phone businesses, including the pending disposal of mobile carrier SFR in a $23 billion deal, a purchase of Telecom Italia shares wouldn’t be completely against its focus on media assets such as pay-TV provider Canal Plus. Telecom Italia has sought closer ties with broadcasters to expand in content distribution as call prices slump.
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