Mergers & acquisitions

Telefónica €5.7B Bid for Vivo Rejected

Telefónica SA (NYSE: TEF) clearly still has an appetite for acquisitions.

With its €900 million (US$1.14 billion) acquisition of German operator Hansenet still smouldering on its books, the Spanish giant offered €5.7 billion ($7.23 billion) for Portugal Telecom SGPS SA (NYSE: PT)'s 50 percent stake in the pair's Brazilian joint venture, Brasilcel, which holds a controlling stake in operator Vivo Participacoes SA . (See Telefónica to Buy Hansenet.)

The offer, though, was rejected outright.

Portugal Telecom issued a statement late Monday saying its board had reviewed Telefónica's offer for Brasilcel, noting that "Vivo is core to PT’s strategy and the sale of its stake would be against the long term growth prospects of PT."

The Portuguese operator's first-quarter financial report shows Vivo's importance. Of its €1.77 billion ($2.27 billion) in revenues, Vivo contributed €883.4 million ($1.12 billion), half the total, and up more than 25 percent from a year earlier. Vivo ended March with 54 million customers, up more than 18 percent from a year earlier, giving it a 30 percent share of the Brazilian mobile market. (See Brazil Preps for Mobile Upheaval.)

The acquisition offer stands until June 6, and it seems likely Telefónica will come back with a higher bid as it looks to gain control of the lead mobile player in a growth market. Investors certainly seem to think the Spanish carrier will return with a higher offer, as Portugal Telecom's share price leapt 8.4 percent to €7.72 in Tuesday morning trading.

Telefónica's share price, though, dipped nearly 4 percent in Madrid to €15.91.

Telefónica is keen to further establish itself in the Brazilian market. It already owns fixed line carrier Telecomunicações de São Paulo S.A. (Telesp), and tried last year to bolster that business with a move to buy GVT but lost in a bidding war to Vivendi . (See TEF Goes Nuts for Brazil and Vivendi Floors Telefónica.)

Now it wants to take control of Vivo and merge it with Telesp to create a fixed/mobile services giant in Brazil.

Telefónica, which reported full year 2009 revenues of €56.7 billion ($71.9 billion), is already one of the giants of the global telecom sector, with 265 million customers worldwide. It has significant European assets (operations in Spain, the United Kingdom, Ireland, Germany, Czech Republic, and Slovakia, and its investment in Italy), a stronghold in Latin America (active in every major market), and a stake in China Unicom Ltd. (NYSE: CHU). (See Is Italian on Telefónica's Menu? , China Unicom, Telefónica Strengthen Ties, and Telefónica's New Battleground.)

— Ray Le Maistre, International Managing Editor, Light Reading

stelabokun 12/5/2012 | 4:36:40 PM
re: Telefónica €5.7B Bid for Vivo Rejected

During Telefonica's Roadshow (NYC - Boston)  - April 2010,
Cesar Alierta, Telefónica's  CEO listed the following three as the company's M&A priorities in 2010:

1. Spectrum auctions in current
markets to foster growth:
a) Germany & Mexico in H1 2010
b) Potential awarding process in
Spain along 2010

2. In-market consolidation:
a) Hansenet acquisition closed
on February 16th

3. Increase shareholding in China
Unicom to 10%

....I have to admit, that did sound "fishy" back then...as if LATAM is not their major market...

Gabriel Brown 12/5/2012 | 4:36:37 PM
re: Telefónica €5.7B Bid for Vivo Rejected

Fwiw in this context,  TEF needs to win 2x10 MHz of 800 MHz spectrum in the Germany auction (ongoing) if it's to really take on Vodafone and T-Mobile in that market. That looks like it will cost a penny.

See thread on German Spectrum Auction


stelabokun 12/5/2012 | 4:36:37 PM
re: Telefónica €5.7B Bid for Vivo Rejected

Even if they were to decide to pay that “penny” they are unlikely to really take on Vodafone and T-mobile in Germany in foreseeable future. They (Telefonica) had roughly 6-7% of the total German telecom revenue in 2009 (compared to 45% and 21% of DT and Vodafone respectively). Best case scenario, Telefonica’s share will grow to 10-12% by 2014.

stelabokun 12/5/2012 | 4:36:36 PM
re: Telefónica €5.7B Bid for Vivo Rejected

The Bra market is all about consolidation. In 2009, Oi acquired Brasil Telecom and it now accounts for around 39% of the total telecom revenue (Telefonica is roughly at 14% and Vivo at 14%).
The total Brazilian market revenue was almost US$50bn in 2009 and I think it would make sense for Telefonica to pay a lot (!!!) to get Vivo. LATAM is Telefonica’s little empire, and Brazil is the most important market in the empire (due to its volume – 40% of the region). Revenue potentials are infinite in this market (high projected growth), and as per costs Telefonica will incur to consolidate operations, they don’t compare to opportunity costs they face if they don’t raise their profile in Bra.  Plus, Telefonica will save a lot from all sorts of operational synergies both in Brazil and on the regional level.

digits 12/5/2012 | 4:36:36 PM
re: Telefónica €5.7B Bid for Vivo Rejected

Going back to Brazil.... even if TEF upped its offer significantly, if Portugal Telecom going to offload a business that generates half of its revenues and a decent slice of its EBITDA? Maybe it would have to be a crazy price (10 billion euros?), which wouldn't make sense, as TEF would then have the integration costs to add in Brazil and no guarantee that pulling Vivo and Telesp together would be a happy marriage. 

stelabokun 12/5/2012 | 4:36:35 PM
re: Telefónica €5.7B Bid for Vivo Rejected

Hi Ray,

It's difficult to say at which point PT would go for the deal (though I trust that Telefonica wouldn’t make any offer if they didn’t think Vivo had its price). As per Telefonica, ooohhhh yes, I think they may come up with something more impressive…

digits 12/5/2012 | 4:36:35 PM
re: Telefónica €5.7B Bid for Vivo Rejected

So, Stela, you are saying that TEF could indeed offer a LOT more, and that PT might just sell if the $$$ signs flash too brightly....

They do say that everyone has their price, don't they?

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