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Mergers & acquisitions

Portugal Telecom Rejects Sonaecom Bid

Portugal Telecom SGPS SA (NYSE: PT)'s investors blocked a €12 billion (US$15.7 billion) hostile takeover bid from Sonaecom at a general shareholders' meeting on Friday, ending a year-long battle for ownership.

The result sparked a public row between Portugal Telecom and its neighbor, Telefónica SA (NYSE: TEF) -- one of the operator's largest shareholders, with a 10 percent stake -- because Telefónica voted in favor of Sonaecom. Telefónica and Portugal Telecom together own a 63 percent stake in Brazilian mobile operator Vivo Participacoes SA in a 50-50 joint venture. Reportedly, Sonaecom had an agreement with Telefónica that it would sell Portugal Telecom's stake in Vivo to Telefónica.

Following Friday's vote, Portugal Telecom made it clear that it was not interested in selling its stake in Vivo, particularly to Telefónica. Portugal Telecom's chairman and CEO Henrique Granadeiro told the Financial Times, "They speak Portuguese in Brazil, not Spanish."

But the spat between the neighboring telcos could all just be hot air, according to analysts. "You'd think that both would be big enough to get over this and work nicely together," says Robert Grindle, an analyst at Dresdner Kleinwort .

For Telefónica, the missed opportunity to gain control of Vivo is "the loss of a positve, rather than a negative" outcome, says Grindle. "Telefónica investors thought they could get Vivo at a good price. Now they'll have to get it at a higher price, if they want it."

To succeed in its bid for Portugal Telecom, Sonaecom first had to clear a big regulatory hurdle. The national operator's shareholders had to agree to abolish certain voting restrictions, which prevent a single shareholder from voting for more than 10 percent at a time. This is the vote that Sonaecom lost on Friday. (See Eurobites: New Year, More M&A.) Sonaecom first approached Portugal Telecom with an offer of €9.50 per share in February last year. Portugal Telecom has consistently rejected any offer even when Sonaecom increased its bid to €10.50 per share. (See Eurobites: M&A, IPO & KPN, Euro M&A Update, and Sonaecom Enters Last Phase.)

Sonaecom had planned to merge its mobile operator, Optimus Telecomunicações , with Portugal Telecom's mobile business, which would have combined the country's third largest operator with the biggest. Now mobile consolidation in the Portuguese market is on hold. (See Sonae Closes In on Portugal Telecom.)

"Portugal Telecom will have to create other value for shareholders to compensate for the lack of consolidation," says Dresdner's Grindle.

— Michelle Donegan, European Editor, Light Reading

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