Telefónica Wins Control of Brazilian Operator After Raising Bid

Telefónica of Spain won full control of the mobile phone joint venture it had with Portugal Telecom in Brazil after raising its bid for a third time to 7.5 billion euros, thereby overcoming opposition from the Portuguese government.
The deal, worth about $9.8 billion, was announced Wednesday morning by the Spanish stock market regulator.
It should end a lengthy tussle between two European operators that have come to rely increasingly on earnings from Brazil’s fast-growing mobile phone market to offset sluggish sales at home.
Telefónica will now be paying almost a third more than it initially offer in early May for Portugal Telecom’s 50 percent stake in the holding company that controls Vivo, the leading operator in Brazil.
Last month, the Portuguese government vetoed an increased offer of 7.15 billion euros. José Sócrates, the Portuguese prime minister, justified the decision by saying that a presence in the lucrative Brazilian market was “strategic and fundamental for the development of Portugal Telecom.”
The government’s veto overrode a vote by Portugal Telecom shareholders in favor of the Spanish offer. The European Court of Justice also found that the government had used an illegal method to block the deal.
The agreement Wednesday is likely to come as a relief to investors on both sides, after the Spanish operator had threatened to launch what was likely to be a lengthy and costly legal battle to circumvent the Portuguese veto and gain control of Vivo.
A report Wednesday on the website of Jornal de Negócios, a Portuguese newspaper, said that Portugal Telecom planned to use part of the proceeds from the Vivo sale to buy a stake of 21 percent in another Brazilian operator, Oi, for about 3.75 billion euros. That deal, if completed, would allow Portugal Telecom to maintain a Brazilian presence.
Telefónica and Portugal Telecom shares were suspended from trading on Wednesday morning. Meanwhile, the shares of Banco Espirito Santo soared 5 percent. The bank is the largest shareholder in Portugal Telecom, with a stake of 8 percent, and had already voted in favor of the earlier bid.
Telefónica revenues in Spain fell 3.9 percent in the first quarter, while revenues from Brazil and its other Latin American businesses rose 4.2 percent. A similar scenario has unfolded for Portugal Telecom, whose domestic wireless revenues fell 6.5 percent in the first quarter while revenues from its Brazilian wireless business rose 26 percent.