Portugal Telecom hails Telefonica offer for Vivo as insufficient

www.WirelessFederation.com/news: Portugal Telecom has announced that 5.7 billion- euro ($7 billion) offered by Telefonica for its stake in their Brazilian joint venture is clearly insufficient. Earlier, the Portuguese company had described its holding in Vivo Participacoes SA, Brazil’s largest wireless operator as strategic and a fundamental growth pillar.

Spanish company’s offer for the stake was rejected by its board on May10 but the latest comment by the SGPS SA Chief Executive Officer Zeinal Bava suggest that the Lisbon-based company may be holding out for a better price.
Telefonica Chairman Cesar Alierta has been trying to merge Vivo with Telecomunicacoes de Sao Paulo SA, or Telesp, the Spanish company’s fixed-line unit in Brazil and for this purpose, it has been trying to gain control of it since at least 2006. Telefonica even threatened to curb Portugal Telecom’s ability to pay dividends, seeking to force it to the negotiating table.

Analysts also feel that Telefonica should raise its offer to 7.5 billion euros. Telefonica and Portugal Telecom jointly own Brasilcel, a holding company with a controlling stake in Vivo. In case the offer fails, Portugal Telecom’s ability to secure Vivo dividend payments via Brasilcel might be blocked by Telefonica.

Depending upon the performance by Vivo in 2009, Brasilcel is due to pay a dividend of €111m each to Telefonica and Portugal Telecom this year. Vivo had 30 percent of Brazil’s 179 million wireless subscriptions at the end of March and Vivo has driven revenue growth for Portugal Telecom as growth in Europe slows and competition increases at home.

Telefonica Brazilian fixed-line phone business, Telesp is also underperforming amid increased competition and the telco wants to improve its position by merging Vivo and Telesp so that it can secure €2.8bn of cost savings. Due to Portugal Telecom’s skepticism about the merger, Telefonica had to make an offer to buy the Portuguese company out of Vivo.