UPDATE: Telefonica Could Block PT's Dividends From Vivo
May 26 2010 - 6:42AM
Dow Jones News
Telefonica SA (TEF) said Wednesday it could block dividends
Portugal Telecom (PT) collects from the Brazilian mobile joint
venture both companies control, in a move to ramp up pressure on PT
to sell its stake in Vivo Participacoes SA (VIV).
In a presentation to investors, Telefonica said Portugal Telecom
doesn't have direct access to Vivo's cashflow and an estimated
EUR111 million PT is likely to get from Vivo this year is subject
to an agreement with Telefonica.
"Telefonica's strategy is blackmail," a PT spokesman said,
adding the company should relinquish its board seats at PT due to a
"lack of loyalty" and a conflict of interest.
Portugal Telecom and Telefonica currently share control of
Brasilcel, a holding company that owns about 60% of Vivo. Brasilcel
bylaws require both companies to sign off on key aspects like
dividend repatriation and strategic moves in Brazil.
Telefonica began a roadshow Wednesday to persuade Portugal
Telecom's shareholders to accept a EUR5.7 billion offer Telefonica
made earlier this month for PT's portion of Vivo.
"The success of Telefonica's bid is dependent on the feedback
investors give to both companies and if they will let PT reject
Telefonica's offer or a potential higher offer," ING analyst John
Davies said.
At 1007 GMT, Portugal Telecom shares rose 5.8% to EUR7.73,
making it the top gainer on Lisbon's PSI-20 index, while
Telefonica's shares rose 1.4% to EUR15.32.
For both companies, Vivo is a key asset. Vivo represented
roughly half of Portugal Telecom's revenue in the first quarter,
and was the only segment that showed significant revenue
growth.
The Portuguese company has said Vivo is a core part of its
business and that leaving Brazil would threaten its long-term
growth prospects.
PT has its government's backing; Prime Minister Jose Socrates
recently described the company as a strategic asset. and Brazil as
a key market.
A Telefonica spokesman also said Telefonica doesn't rule out a
hostile bid for all of Portugal Telecom, in which it already has a
10% stake, if the company doesn't agree to sell Vivo.
The Portuguese market regulator Wednesday asked Telefonica to
clarify the circumstances that would justify the launch of a
bid.
Earlier this month, Telefonica's Chief Financial Officer
Santiago Fernandez Valbuena said that from a strictly financial
point of view a full takeover of PT might make more sense than the
bid for Vivo, but Telefonica hadn't bid for the company out of
"respect" for Portugal and its key companies.
ING's Davies said that Telefonica might be able take over all of
PT, but said a good relationship with the Portuguese government was
crucial for smooth operations in the country.
Taking over PT "doesn't seem to be consistent with Telefonica's
strategy: the synergies of two European fixed-line companies are
limited and Telefonica wouldn't get the goodwill amortization like
it would in the deal for Vivo," Davies said.
-By Jason Sinclair, Dow Jones Newswires, 34 913958127,
jason.sinclair@dowjones.com
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