Telefonica, which owns Brazil’s leading mobile operator Vivo, said yesterday its offer consisted of an 11.96bn Brazilian reals ($5.30bn) payment in cash plus new shares to be issued in Telefonica Brazil worth 12% of the larger group.

Reuters

Paris/Madrid

Spain’s Telefonica has made a €6.7bn ($8.99bn) bid to France’s Vivendi for its Brazilian broadband unit GVT, seeking to strengthen its position in a market that accounts for one-fifth of revenue.

The surprise move comes after Vivendi, led by its chairman and largest shareholder Vincent Bollore, said in late June it wanted to keep its last remaining telecom asset despite repositioning itself as a media company.

The French company said that none of its units were for sale but it would consider Telefonica’s offer at its next board meeting at the end of August.

Telefonica, which owns Brazil’s leading mobile operator Vivo, said yesterday its offer consisted of an 11.96bn Brazilian reals ($5.30bn) payment in cash plus new shares to be issued in Telefonica Brazil worth 12% of the larger group. No new debt would be taken on by Telefonica.

Telefonica also offered Vivendi the chance to acquire its 8.3% stake in Telecom Italia. If accepted, this would help solve the thorny antitrust problem Telefonica has in Brazil where regulators have ordered it to resolve the fact it owns both Vivo and indirectly part of Telecom Italia’s Brazilian mobile operator TIM Participacoes too.

Brazil is a crucial market for the Spanish telecoms giant since it is its second largest cash generator and has growth potential unlike relatively saturated markets such as Germany and Britain.

A purchase of GVT would help the Spanish operator bulk up in fixed telephony and broadband where it is in third place in Brazil with an 18.4% share behind America Movil and former monopoly Oi. GVT is fourth place with 12.7% share.

Telefonica has long coveted GVT — it lost an initial bidding war to Vivendi to buy the company in 2009.

Telefonica shares had slipped 1.33% to €11.82 mid-morning while Vivendi’s rose 0.63% to €19.54.

If successful, the move could also make mobile consolidation in Brazil less likely, and Telecom Italia shares fell 5% as a result.

Telefonica had been pushing for a break-up of TIM earlier this year to solve its regulatory problems, but Oi, its ally in such a effort, has since been weakened by a scandal at Portugal Telecom and is unlikely to be able to lead a bid, sources earlier said.

In July, Telefonica sold €750mn in bonds that convert to Telecom Italia shares, which would eventually cut its stake to around 10% from 15%.

Telefonica’s move could also prompt interest from other buyers. When Vivendi tried to sell GVT in 2012, it attracted a bid from a private equity consortium led by KKR and US satellite television provider DirecTV, which is in the process now of being bought by US telco AT&T.

Vivendi decided not to sell at that time because the bids were too low.

A source familiar with the French company’s thinking said on Tuesday that the Telefonica bid was a “good price for a first bid” but that it remained unclear what Bollore wanted to do.

The person added that Telecom Italia could also jump into the fray but that it was probably too early for DirecTV since the AT&T deal was still under regulatory review.

“I think it will come down to a war between the Spanish and the Italians,” he said.

“But a decision to sell GVT has enormous implications for Vivendi,” said the person, adding that Vivendi did not really have an immediate use for the money.

In addition Bollore just took the reins of the group and has said his aim is to build a coherent media company by acquisitions and by making its pay-TV, music, and Brazilian telecom unit work more closely together.

Analysts however have speculated that Bollore would be open to shedding GVT at the right price.

“Vivendi’s language suggests it would be willing to sell but is waiting for any counter-bids: GVT is an attractive asset,” wrote Liberum analysts, adding that AT&T could be interested.

“We think Vivendi will sell — GVT does not fit in with its stated strategy of being a media and content player.”

Carlos Winzer, a credit analyst at Moody’s, said Telefonica was not risking its rating since the deal would be paid for by a capital increase. “As it’s been proposed, it would be an all equity transaction so it would not increase debt,” he said.

“It also makes a lot of industrial sense and could eventually even be credit positive since it would strengthen Telefonica position in Brazil and prevent a competitor from buying GVT.”