UPDATE: Telefonica Sells 8% Of PT Ahead Of Vivo Stake Vote

Spain's Telefonica SA (TEF) said Wednesday it sold 8% of Portugal Telecom SGPS S/A (PT), in the latest signal of widening rifts between the two Iberian telecommunications companies.

A company spokesman confirmed Portuguese media reports about the sale to international investors, such as hedge funds and asset managers. No additional details were immediately disclosed. At current market prices, the sale could be worth some EUR800 million.

Both companies have been locked in a power struggle over Brazil's coveted telecommunications market. The Spanish giant, which was the single largest shareholder in PT, still owns another 2% in the Portuguese company, representing more than 18 million PT shares.

The sale of PT shares comes as Telefonica is trying to gain control of Brazilian mobile company Vivo Participacioes SA (VIV), which is jointly owned by the two companies. PT shareholders will meet next week to vote on Telefonica's unsolicited offer of EUR6.5 billion for PT's stake in Vivo after an earlier bid of EUR5.7 billion was rejected by PT's board.

Both Telefonica and PT control Vivo through a 50-50 joint venture in the investment vehicle Brasilcel, which controls 60% of Vivo.

Senior PT executives argued the offer didn't value Vivo appropriately. PT Chairman Henrique Granadeiro said in a television interview late Tuesday that Telefonica would be in a conflict of interest if it were allowed to vote on its own offer at next week's meeting.

PT has also rejected a proposal from Telefonica to discuss the distribution of an extraordinary dividend if the Portuguese company's shareholders agreed to sell Vivo's stake. PT said in a regulatory filing that hedge fund TPG-Axon Capital Management LP now owns 4.24% of PT, or 38 million shares. Several asset management units of Swiss bank UBS AG (UBS) now own a combined 5.8% stake in PT, or more than 52 million shares.

PT shares closed 0.2% lower to EUR8.92. The company has a market value of EUR10.07 billion and 1.13 billion shares outstanding. Telefonica, in turn, has a market capitalization of EUR73.85 billion. Its shares closed 1.1% lower to EUR16.18 Wednesday.

Telefonica's disposal of PT shares through open market transactions could be completed over the next couple of days, in an effort to limit price drop pressures, according to one person familiar with the transaction. Other key PT shareholders include Portuguese banks Banco Espirito Santo SA (BES.LB) and Caixa Geral de Depositos.

-By Santiago Perez, Dow Jones Newswires, 34 913958119, santiago.perez@dowjones.com

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