The vote on Telefonica SA’s 6.5 billion-euro ($8 billion) offer for Portugal Telecom SGPS SA’s stake in their Brazilian venture may be too close to call, turning on how a centuries-old antagonism plays out.
Portuguese investors probably control 40 percent to 50 percent of the vote, according to Banco BPI analyst Pedro Pinto Oliveira, meaning the bid’s success may hinge on whether they cast their ballot at tomorrow’s meeting along nationalistic lines. Portuguese Prime Minister Jose Socrates last week asked state-owned lender Caixa Geral de Depositos SA, with 7.3 percent of Portugal Telecom, to reject the bid.
The Spanish company’s offer may come up against a four-century-old distrust on the Iberian Peninsula that’s given rise to the Portuguese adage that “from Spain, there are neither good winds nor good marriages.” The two countries are squaring off today too, playing each other in the World Cup soccer match to determine which team goes to the quarterfinals.
“There is a certain element of hostility there,” said Roger Appleyard, head of global credit research at RBC Capital Markets in London. “It would probably not be the same if the bid were from a company such as Deutsche Telekom.”
Telefonica is offering to buy Portugal Telecom’s stake in their 50-50 venture Brasilcel NV, which owns 60 percent of Vivo Participacoes SA, Brazil’s largest wireless company. Portugal’s Socrates has called the stake in the asset in Brazil, a former Portuguese colony, “strategic.”
“It’s a national issue,” said Jorge Felix, president of the Portugal Telecom workers’ union. “No one can deny the strategic value Vivo has for the growth of Portugal Telecom, or the strategic interest for the country of having a company that has the capacity to invest and help in its technological development. It’s as much or more important for Portugal than it is for Spain.”
Portugal Telecom relies 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. Yet Portugal Telecom this month acknowledged that the company can provide “no assurance” that “similar value will be delivered to the shareholders for Vivo” should Telefonica’s bid fail.
“Portugal wants to remain having a national champion and that’s all fine, but it does not make rational economic sense to reject the offer because it’s significantly more than the Vivo stake value on any measure,” said Appleyard.
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.
Telefonica held 10 percent of Portugal Telecom before reducing its stake to 2 percent last week. Telefonica still controls 10 percent of the voting rights, Portugal’s securities market regulator said yesterday. Antonio Menezes Cordeiro, chairman of the shareholders’ meeting, will decide if the Spanish company can exercise its voting rights or whether it would represent a conflict of interest.
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.
Two large Portuguese shareholders have said they will reject the bid. Ongoing Strategy Investments SGPS SA, which owns a 6.8 percent of the Portuguese company and has board representation, plans to vote against the offer.
The price is not sufficient, Jose Maria Espirito Santo Ricciardi, chief executive officer of Banco Espirito Santo SA’s investment banking unit, said in May. Banco Espirito Santo owns about 8 percent of the stock.
“It will be a close call,” said Teresa Martinho, an analyst at Banif Investment Bank in Lisbon. “I still think at this price it will be hard to pass.”
Portugal Telecom Chief Executive Officer Zeinal Bava has sought to step up the fight to force his counterpart at Telefonica, Cesar Alierta, to put more money on the table.
Alierta has refrained from boosting the bid a second time. Portugal Telecom, which rejected an initial 5.7 billion-euro bid without a shareholders vote, has said the revised offer “does not reflect the strategic value of this asset for Telefonica.”
Madrid-based Telefonica, which said its first offer was “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.
“The offer is more than reasonable and that should be enough,” said Alberto Espelosin, who helps manage about $12 billion at Ibercaja Gestion in Zaragoza, Spain.
Still, for some investors, voting on the offer may be less about reason and more about history. Portugal fought off invading Spanish armies in the 1600s as well as the 1800s, when they attacked with Napoleon’s forces. Spain ruled over Portugal for 60 years between the late 1500s and early 1600s.
That history is the backdrop for most of Portugal’s dealings with its neighbor -- from business to soccer.
“It’s a regional rivalry in every aspect,” said Carlos Queiroz, the Portugal team’s coach, said at a press conference yesterday in South Africa. “A Portugal-Spain is a special titbit, like Argentina-Brazil or England-Germany. They are menus you don’t see every day.”