Portugal Telecom might accept Telefonica offer if bid rises by $7b

www.WirelessFederation.com/news: Portugal telecom has signaled that it might accept more than the 5.7 billion euros ($6.9 billion) on offer, thus bringing Telefonica SA an inch closer to clinching the purchase of the Portuguese company’s stake in their Brazilian joint venture. Earlier the company had described the bid as low and opportunistic and before that it called its stake in Vivo Participacoes SA, Brazil’s largest wireless operator, strategic, suggesting a sale wouldn’t be considered.

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.

According to Chief Executive Officer Zeinal Bava yesterday, the current valuation Telefonica is putting on the Vivo asset is low, and it think it’s opportunistic, clearly taking advantage of the fact that southern Europe is having one of its worst crisis for the last three decades. However, even if Telefonica raise the price, taking over Vivo will be an uphill task. Telefonica is facing rivals in the form of Vivendi SA and America Movil, controlled by Mexican billionaire Carlos Slim, in Brazil, where it is seeking growth as demand at home cools.

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.
In case the offer fails Portugal Telecom’s ability to secure Vivo dividend payments via Brasilcel might be blocked by Telefonica and this move has been called attempted blackmail by Portugal telecom.