Telefonica Makes $7.3 Billion Unsolicited Vivo Bid

The Telefonica logo
Telefonica SA, Europe’s second-largest phone company, made an unsolicited bid to buy out its Portuguese partner for 5.7 billion euros ($7.3 billion). Photographer: Denis Doyle/Bloomberg

Telefonica SA, Europe’s second-largest phone company, made an unsolicited bid to buy out its Portuguese partner in a venture that controls Brazil’s biggest wireless carrier for 5.7 billion euros ($7.3 billion).

The offer, rebuffed by Portugal Telecom SGPS SA, values the carrier, Vivo Participacoes SA, at about 140 percent higher than its market capitalization. Lisbon-based Portugal Telecom’s board unanimously rejected the bid, saying on its website that the Brazilian carrier is core to its strategy.

“It’s the only shot Portugal Telecom has at long-term growth,” said Peter Lyons, an analyst at Oscar Gruss & Son Inc. in New York. “If Telefonica does come back with another offer, it’s going to have to be something with shock value to create a rift between the shareholders and the management.”

The bid fueled speculation the two companies will battle for control of the leading carrier in South America’s biggest mobile-phone market, where the number of subscribers is projected to grow 11 percent this year. The offer builds on Telefonica’s strategy of countering slowing growth in Europe through acquisitions in Latin America, where the company has spent more than $50 billion since the 1990s.

Telefonica fell as much as 3.9 percent. The shares slid 3.6 percent to 16.18 euros as of 10:39 a.m. in Madrid. Portugal Telecom soared 9.8 percent to 7.81 euros in Lisbon.


“We are disappointed with the initial response of Portugal Telecom,” said Telefonica spokeswoman Marisa Navas. “This is a very positive offer for the shareholders of Vivo, Portugal Telecom and Telefonica.”

An offer of 8 billion euros might be enough to persuade Portugal Telecom’s investors to push for a sale, said Lyons, who advises holding on to Vivo shares. Telefonica could also seek other acquisitions in Brazil’s mobile market such as TIM Participacoes SA, the third-largest wireless carrier behind Vivo and Carlos Slim-controled America Movil SAB, Lyons said.

A spokesman for Vivo in Sao Paulo, who asked not to be named because of internal policy, declined to comment.

The offer, expiring on June 6, values Vivo at almost 32 times projected earnings for 2010, according to Credit Suisse Group AG analyst Andrew Campbell. That’s in line with multiples at which shares of Latin American telecommunications companies trade, according to data compiled by Bloomberg.

GVT Failure

Spain’s Telefonica offered to buy half of Brasilcel NV, the unlisted joint venture with Portugal Telecom that owns about 60 percent of Vivo. The Brazilian carrier had 30 percent of the nation’s 179 million wireless subscriptions at the end of March, according to Anatel, the country’s phone regulator.

Failure to seal the deal would mark the second disappointment for Telefonica in Brazil in the past year. Telefonica lost out to France’s Vivendi SA in a takeover battle last year for land-line phone company GVT (Holding) SA. The Madrid-based company controls Telecomunicacoes de Sao Paulo SA, which offers home-phone and Internet service in the state of Sao Paulo.

Combining the operations of that company with Vivo could save 3 billion euros a year in costs, Credit Suisse’s Campbell said last month in a note to clients.

Telefonica said if Portugal Telecom accepted its bid, it would buy outstanding common shares of Vivo for 600 million euros. That would value those shares at about 86 reais ($49) a share, according to Credit Suisse estimates, or double their closing price of 43.50 reais in Sao Paulo trading yesterday.

Carlos Slim

Vivo’s preferred shares, which are not included in Telefonica’s offer for outstanding shares and have limited voting rights, rose 5.6 percent to 45.50 reais yesterday.

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 Brazil. America Movil and Telmex Internacional are both controlled by billionaire Carlos Slim.

Portugal Telecom has counted on Brazil to spur revenue as growth in Europe has slowed and competition increased at home. The company’s Brazilian sales increased 4.1 percent to 3.23 billion euros last year, while revenue from Portugal declined 1.9 percent.

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 last month.

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