2nd UPDATE: Telefonica Bids EUR5.7 Billion For PT Stake In Brasilcel

Spain's Telefonica SA (TEF) said early Tuesday it has launched a EUR5.7 billion cash offer for the 50% stake Portugal Telecom SGPS.SA (PT) owns in Brasilcel NV, in its second attempt in less than a year to boost its presence in Brazil.

The unsolicited bid, which was sent to the Portuguese telecommunications group May 6, was unanimously rejected by PT's board of directors at a meeting Monday. It nevertheless sent Portugal Telecom's share price soaring more than 20% in early trade in Lisbon, as analysts speculated on whether Telefonica would consider sweetening its offer.

Brasilcel is an investment vehicle jointly owned by both Telefonica and Portugal Telecom which controls 60% of Brazilian mobile company Vivo Participacoes SA (VIV).

In its offer letter to Portugal Telecom's board, Telefonica said that if it agreed to a sale, Telefonica would integrate Vivo with its Brazilian fixed line operator Telesp to create a "superior integrated operator."

Rival operators in Brazil are moving towards offering so-called triple and quadruple play to consumers -- fixed line phone, internet, television and cell phone-- and Telefonica in its letter touted the merits of such a strategy.

"The offer realizes value for Portugal Telecom shareholders that cannot be achieved by Portugal Telecom standalone: potential subsequent Telesp-Vivo integration synergies are unique to the transaction," said Telefonica in the letter.

Brazil has become increasingly important as a growth platform for Telefonica because its Spanish home market is suffering from a long economic recession and because profitability in other Latin American markets has been hurt by high inflation.

Telefonica tried to bulk up in this fast-growing Latin American market late last year when it bid for telecoms operator GVT (GVTT3.BR). However, it lost a $2.8 billion bidding contest to France's Vivendi SA (VIVDY). Telefonica's offer for Brasilcel, which is binding and is not subject to any type of condition, will expire June 6.

As part of its offer, Telefonica said it will launch a separate bid to buy an additional 3.8% of Vivo shares for an extra EUR600 million.

Portugal Telecom said that Vivo is core to the company's strategy and "the sale of its stake would be against the long term growth prospects of PT."

At 0821 GMT, Telefonica's shares were trading down 2.8%, or EUR0.46, at EUR16.08, in line with the Spanish market. In Lisbon, PT was trading up 10.6%, or EUR0.76 at EUR7.88.

"For PT, the premium being offered is substantial and we estimate that PT could in theory sell Vivo and use the proceeds to buy back 40% of its own equity," said Barclays Capital in a note to investors. The brokerage added that Telefonica's share price would likely suffer due to the substantial premium it is offering for Vivo.

Company Web site: www.telefonica.com

-By Enza Tedesco and Christopher Bjork, Dow Jones Newswires, djmadrid@dowjones.com

Telefonica Brasil (NYSE:VIV)
Historical Stock Chart
From Apr 2024 to May 2024