Vivo headquarters in Sao PauloNACHO DOCE
Spain's Telefonica has won its battle for a bigger share of the burgeoning Brazilian market, raising its offer for Portugal Telecom's stake in mobile operator Vivo to €7.5-billion ($9.7-billion U.S.).
The long-sought-after takeover, a coup for Telefonica chairman Cesar Alierta, makes the telecommunications group the biggest in Brazil whether measured by its 69.2 million clients or its 2009 revenues of €11.8-billion, Telefonica said.
For its part, PT announced an agreement with Brazilian phone giant Oi that ensures its continued presence in Portugal's former colony and soothes fears it could be relegated to a mainly Portuguese carrier.
Investors said the Vivo deal offered clear growth prospects and ended the uncertainty that has dogged Telefonica shares since the last chapter of the takeover battle began two months ago.
Telefonica shares closed up 0.7 per cent to €17.005 against a modest decline in the European telecoms index. PT shares, which had been suspended pending the company's statement, rose 2.81 per cent to €8.53.
The Vivo deal has the all-important blessing of Portugal's government, which rejected Telefonica's earlier bid, and will allow the Spanish telecom group to offset the impact of slowing revenues from its largely mature European businesses by boosting its presence in the country of 190 million.
That is key now that Telefonica's main rival, Carlos Slim's America Movil, is integrating its fixed and mobile businesses in Brazil. Telefonica wants to do the same with units Telesp and Vivo.
Brazil's phone giant Oi said it had signed an agreement with PT for an "eventual" alliance that involves PT taking a 22.4 per cent stake in its operating unit Telemar Norte Leste and also buying shares in the holding company that controls Oi for 8.44-billion reais ($4.77-billion).
Newspapers in Spain and Portugal had earlier reported that PT would use proceeds from the Vivo sale and a capital hike to fund the purchase of a stake in Oi..
Highlighting the political sensitivities of the deal, Portugal's cash-strapped government risked a major legal battle last month, when it used its golden share in PT to veto the previous offer for Vivo.
The price, confirmed by PT and Telefonica on Wednesday, is near the maximum the Spanish telecoms group could afford and more than the entire €7.4-billion value of PT itself, but analysts said it was worth it.
Some analysts speak of synergies worth up to €4-billion from the Vivo takeover and the planned merger of Telefonica's fixed-line and mobile holdings in Brazil - that suggests the deal would be accretive despite the higher price tag.
"Telefonica can pay up to €7.5-billion without destroying value," said Georgios Ierodiaconou at ING in London.
On Tuesday, Telefonica closed an €8-billion loan which was oversubscribed, supporting its bid for Vivo.
Telecoms has been one of the most dynamic industries in fast-growing Brazil's economy over the past year, a byproduct of a resilient job market and growing family income.
Indeed, Vivo acquired two million new subscribers from April to June, with its share of Brazil's wireless phone market reaching 30 per cent.
The country of 190 million people has also become more important for telecom players because of the relatively low penetration of certain services such as mobile telephony, Internet broadband and data services.
The acquisition was approved on Wednesday by the boards of both PT and Telefonica, which will also study the possible purchase of Dedic, PT's contact centre business in Brazil.
Since payment to PT is staggered into three stages, the current value of the takeover was €7.3-billion, Telefonica said. It is expected to close in under 60 days.
"The deal is a bit more dilutive given the huge premium paid, but not materially... and probably is reflected in the share price," said Javier Borrachero, an analyst at Kepler in Madrid, who estimates potential synergies at €2.8-billion.
"The positive news for Telefonica is that it finds a solution for Brazil, its merger premium abates and the medium term guidance becomes easier to meet."
Telefonica is expected to post flat first-half net profit.