Spain's Telefonica raises bid for Brazil's Vivo

[June 30, 2010]  LISBON, Portugal (AP) -- Spain's Telefonica raised its bid for Brazil's leading cell phone company Vivo to euro7.15 billion ($8.72 billion) just hours ahead of a shareholder meeting which on Wednesday is considering the unsolicited offer.

The Spanish company raised its offer for Portugal Telecom's stake in Vivo from euro6.5 billion in a bid to get a firmer footing in the fast-growing Latin American market.

Telefonica SA and Portugal Telecom SGPS SA each own 50 percent of Brasilcel, a holding company which in turn owns 60 percent of Vivo. Telefonica wants to buy from PT the half of Brasilcel it does not already have.

The sweetened cash bid came just before midnight Tuesday and was made public in a filing to Spanish securities regulators. PT shareholders are meeting to consider the deal.

The Lisbon stock exchange suspended trading in PT shares after they shot up 5.42 percent to euro8.75 following the new offer.

Joao Pereira Leite, the head of investments at Banco Carregosa in Lisbon, noted that Telefonica's offer was three times higher than Vivo's market value a month ago.

"It's a very generous offer. It makes sense (for PT) to sell," he said.

Telefonica wants to add momentum to its expansion in Latin America, one of its main growth areas, and the Brazilian wireless market is the largest on the continent.

Brazil's economy is booming despite a shaky global recovery, whereas financial gloom in Telefonica's home territory of Spain is choking the company's growth there.

Telefonica is expected to integrate Vivo wireless operations with its Telesp fixed-line services in Brazil, saving costs and broadening its appeal to customers.

Telesp and Vivo already represent the largest telecom force in Brazil's fast-growing market, having together more than 62 million clients and 85,000 employees.

Last November, Telefonica lost its battle to take control of Brazilian telecommunications operator GVT SA after it was outbid by France's Vivendi SA.

PT's board has rejected Telefonica's overture, saying Brazil is at the heart of its growth strategy.

PT's chief executive, Zeinal Bava, has said that selling off Vivo "would amputate PT's future" by stunting its prospects for long-term growth.

However, analysts say PT would have plenty of investment opportunities if the deal goes through.

"Today, with the market drops, market instability and a shortage of credit, a company with a lot of cash has tremendous opportunities to make money," Carregosa's Pereira leite said.

"When there's an international crisis, there must be a lot of people out there who really need capital and who would be very interested in having a partner like PT which has a lot of money to invest," he said.

Telefonica originally offered euro5.7 billion for Vivo in May. It then raised the offer to euro6.5 billion before hiking it further to euro7.15 billion -- more than PT's market capitalization at the time of the original bid.

PT also has interests in three of Portugal's former African colonies -- Angola, Cape Verde, and Sao Tome and Principe -- and in Macau and East Timor, the country's tiny former territories in Asia.

The domestic earnings of PT and Telefonica are hurting from the European economic downturn.

PT reported last month a first-quarter profit of euro100 million -- down almost 40 percent from the same quarter last year.

Telefonica's first quarter sales in Spain were down by 5.7 percent to euro4.6 billion but its income in Latin America rose 4.2 percent to euro5.62 billion.

[Associated Press; By BARRY HATTON]

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