2nd UPDATE: Spain's Telefonica Upgrades Bid For Vivo Stake To EUR7.15 Billion

Spanish telecoms giant Telefonica SA (TEF) has raised its offer for a stake in Brazil's Vivo Participacioes SA (VIV) to EUR7.15 billion, in a last-ditch attempt to convince shareholders of Portugal Telecom SGPS S/A (PT) reluctant to exit the coveted Brazilian market.

Both companies have been locked in a power struggle over Vivo, which the two Iberian telecoms control through a 50-50 joint venture in the investment vehicle Brasilcel, which owns 60% of the Brazilian mobile phone company.

PT said late Tuesday that Telefonica's new offer will be submitted to its shareholders at the general meeting called to vote on the unsolicited bid for Vivo's stake Wednesday morning.

In a Telefonica document sent to PT's management late Tuesday, the Spanish telecom said the increased offer is "the final and definitive offer and Telefonica will not amend, improve, adjust, extend or in any other manner modify it."

Telefonica's first bid of EUR5.7 billion was swiftly rejected by PT's board last month. The Spanish company then offered EUR6.5 billion for PT's stake.

Both companies see Vivo as key to their future growth prospects.

European telecommunications companies, including PT and Telefonica, face stagnant revenues in mature markets as customers scale back spending amid pressures from weak economic conditions and rising unemployment, positioning Brazil as their main growth platform.

Brazil had a total of 183 million cellphone subscriptions in May, according to figures from the Brazilian Telecommunications Agency, or Anatel. Vivo was leader with a 30% market share.

PT and Telefonica are also lured by Brazil's young population and fast-growing economy, which is expected to grow by 6.2% this year, according to a recent survey by the country's central bank.

The Spanish giant, which until recently was also the single largest shareholder in PT, directly owns 2% in the Portuguese company. Last week, Telefonica divested 8% of PT to foreign hedge funds and asset management firms as part of an effort to tilt the voting balance at PT's shareholders meeting.

The Portuguese government, in turn, reacted by asking state-owned bank Caixa Geral de Depositos to vote against Telefonica's bid. Caixa Geral de Depositos is one of PT's core shareholders, along with Portuguese bank Banco Espirito Santo SA (BES.LB).

Company websites:

http://www.telecom.pt

http://www.telefonica.com

-By Santiago Perez, Dow Jones Newswires; enza.tedesco@dowjones.com

(Enza Tedesco and Tom Murphy contributed to this article)

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