Vivendi Favors Telefónica’s $9.8 Billion Bid for Brazil Unit

08/28/2014 12:11 PM

08/28/2014 12:12 PM

The French conglomerate Vivendi said Thursday that it would enter exclusive talks with Telefónica for its telecommunications unit in Brazil after it received two offers for the business earlier in the day.

Telefónica raised its bid Thursday to about $9.8 billion for Global Village Telecom, which operates a broadband network in Brazil.

Telefónica, which had offered to buy the unit earlier this month, wants to combine the business with its existing mobile and broadband services in Brazil, which operate under the Vivo brand.

The revised bid came shortly after Telecom Italia, one of Telefónica’s main rivals in Brazil, offered to pay a combination of cash and shares that valued Global Village Telecom at 7 billion euros ($9.2 billion).

Vivendi said the Telefónica offer “best meets” its strategic and financial goals, namely to exit the telecommunications business. Vivendi has been selling telecommunications assets to focus on its media holdings like the Universal Music Group and the French pay-television operator Canal Plus.

“Vivendi begins a new phase in its development to become an integrated industrial group focused on media and content,” the company said in a news release.

The proposals pitted Telecom Italia against Telefónica, which through a separate holding company is the largest shareholder of its Italian rival.

The rival bids signaled the desire of both companies to expand their broadband networks in Brazil to offset a gradual slowdown in growth in the country’s traditional mobile phone market.

The two operators also continue to report sluggish growth in their home markets, and Brazil - despite concerns that its economy is slowing - offers an opportunity to bolster their overall revenues.

Telefónica’s Brazilian operations, for example, are a main driver of its business in Latin America. The Brazilian unit posted revenue of 12.2 billion euros in 2013 and accounted for 42 percent of Telefónica’s revenue in the region last year.

As of the end of June, Telefónica had about 95 million customer accounts in Brazil, primarily mobile clients.

Telecom Italia’s Brazilian operations have about 73.4 million customers and annual revenue of about 7 billion euros, the company said.

Telecom Italia had hoped to combine Global Village Telecom with TIM Participações, also known as TIM Brasil, which is controlled by the former Italian monopoly.

Barring a change of heart by Vivendi or a breakdown in negotiations, Telecom Italia may have to look elsewhere to increase the size of its Brazilian business.

The Brazilian provider Oi has separately signaled a willingness to pursue its own combination, saying Wednesday that it had hired the investment bank BTG Pactual to explore the possibility of acquiring Telecom Italia’s controlling stake in TIM Participações.

“Oi will keep its shareholders and the market informed of any material events,” the company said in a regulatory filing Wednesday.

A deal for Global Village Telecom would be the latest in a wave of consolidation as European carriers rearrange their assets in the hope of attracting more customers by offering bundled packages of mobile, landline, broadband and television services.

In July, European antitrust regulators gave the green light to Telefónica’s long-awaited acquisition of a German mobile operator, E-Plus.

That deal, worth 8.6 billion euros, would combine the third- and fourth-largest cellphone providers in Germany and create a bigger rival to T-Mobile and Vodafone, which together control more than half of the German cellphone market.

As part of its latest bid for Global Village Telecom, Telefónica would pay 4.66 billion euros in cash and give Vivendi a 12 percent stake in its Brazilian operations. About a third of those shares could be exchanged at Vivendi’s discretion for 5.7 percent of the share capital and 8.3 percent of the voting rights of Telecom Italia.

Telefónica, based in Madrid, recently announced plans to sell convertible bonds in Telecom Italia worth about 750 million euros to reduce its stake in the Italian company and to appease Brazilian competition regulators.

In its bid for Global Village Telecom, Telecom Italia offered to pay 1.7 billion euros in cash and to give Vivendi a 15 percent stake in its Brazilian operations and a stake worth 16 percent of the share capital and 21.7 percent of the voting rights of the Italian company.

It is unclear whether Vivendi would be interested in acquiring a minority stake in the heavily indebted Telecom Italia, which, analysts say, needs to invest significantly in its domestic market to keep pace with rivals like Vodafone.

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