A Telefonica GVT bid worth €6.7 billion ($8.99 billion), or 20,100 million Brazilian Reais at current exchange rates, has been announced by the Spanish telecom giant. GVT (Global Village Telecom) is French company Vivendi’s Brazilian unit. Telefonica aims to combine GVT with its own Brazilian unit Vivo, creating the largest telecommunications provider in Brazil.
The offer consists of 60% in cash, plus a 12% stake in Vivo. Unless Telefonica decides to extend it, the offer expires on September 3.
“The offer envisages that, should Vivendi be interested in acquiring a stable stake in Telecom Italia, Telefonica could offer Vivendi the acquisition, in cash, of up to 1,110 million ordinary shares of Telecom Italia, currently representing a stake of 8.3% of the Telecom Italia voting share capital. The transfer of the shares would take place at closing of the transaction between Vivendi and Telefonica Brasil.”
Brazil anti-trust laws became more stringent
At the end of 2013, Cade, Brazil’s anti-trust watchdog, told Telefonica it had to completely exit Tim Brasil (majority-owned by Telecom Italia), or find a new partner for Vivo, if it wants to continue controlling its own Brazilian unit.
In order to appease the regulators, Telefonica recently announced it was planning to sell Telecom Italia convertible bonds worth approximately €750 million (c. $1 billion) to reduce its stake in the Italian firm.
Telefonica’s Vivo has the largest number of subscribers in Brasil, totaling 95 million at the end of June 2015. Telefonica’s operations in Brazil represent about 42% of its Latin American business. In 2013, the company posted revenue in Brazil of €12.2 billion.
The company has been trying to find ways of expanding within the country. A fierce battle with rivals – Telecom Italia (Tim) and America Movil (Claro) – has eaten into profits as the mobile operators’ ramped up spending on marketing and subsidies on high-end smartphones.
Vivendi had tried unsuccessfully to sell GVT in early 2013. It was not able to agree on a price with DirecTV, America’s largest satellite-TV provider, as well as a group of private equity firms.
In 2009, Vivendi placed a $4.18 billion dollar bid to buy GVT, topping Telefonica’s $4 billion, and clinched the deal.
The four largest mobile network operators in Brazil.
Vivendi plays hard-to-get
In a strange announcement, Vivendi insisted its subsidiaries are not for sale, but followed by saying that its directors will discuss Telefonica’s offer.
“Vivendi wishes to emphasize that none of its subsidiaries are for sale. Its strategy is to create an industrial Group focused on the organic growth of its activities and to support them in their development.”
“However, the Vivendi Supervisory Board will consider the Telefonica offer at its next meeting, in the best interests of its shareholders and the GVT employees, and will decide what action to take as a result.”
Others may place counterbids
Analysts in Brazil believe Telecom Italia may be interested in placing an offer for GVT. The company’s CEO, Marco Patuano, had recently commented that he was interested in expanding Tim Brasil.
AT&T may also jump in, after having agreed to buy DirecTV in a $48.5 billion stock-and-cash deal. DirecTV has over five million (pay-TV) subscribers in Brazil.