Telefónica's $8.8B Brazilian Deal Blocked

Telefónica SA (NYSE: TEF)'s €7.15 billion ($8.8 billion) move to take control of Brazilian mobile powerhouse Vivo Participacoes SA has been blocked at the last minute by the Portuguese government.

The Spanish giant, already a major player in the Latin American telecom market, is keen to buy Portugal Telecom SGPS SA (NYSE: PT)'s 50 percent stake in the pair's joint venture Brasilcel, which owns a controlling stake in Vivo.

Telefónica's initial bid in May was instantly rejected, but it returned quickly with a better price. That's because it's keen to take control of Vivo, a growing mobile operator with more than 54 million customers and a 30 percent share of the mobile market in Brazil, one of the world's key emerging markets. The Spanish carrier wants to combine Vivo with its existing fixed-line assets in the country.

Portugal Telecom's shareholders gathered today at an Emergency General Meeting to consider Telefónica's offer, which it increased at the last minute in an effort to gain backing for its takeover deal. (See TEF Heaps on the Pressure.)

That increased offer was enough to tempt the majority of Portugal Telecom's regular shareholders, 73.9 percent of whom voted in favor of accepting the offer.

But the Portuguese government blocked the deal with its Class A, or "golden," share, which it uses as the equivalent of a trump card in extreme circumstances.

In this instance, it seems the loss of Vivo from Portugal Telecom's portfolio may have been viewed as detrimental to the long-term economic health of the national incumbent, as the Brazilian mobile operator accounts for half of the Portugal Telecom's revenues.

In fact, Portugal Telecom noted in May, when it rejected TEF's initial bid, that "Vivo is core to PT's strategy and the sale of its stake would be against the long-term growth prospects of PT."

News of the government intervention immediately knocked more than 6 percent off Portugal Telecom's share price, though it recovered to end the day down just 1.45 percent at €8.18 ($10.01), as local media reported that the government's move might be challenged in court.

So for Telefónica, it's a case of "nearly, but not quite" for its Brazilian strategy, at least for now.

— Ray Le Maistre, International Managing Editor, Light Reading

jps1024 12/5/2012 | 4:31:01 PM
re: Telefónica's $8.8B Brazilian Deal Blocked

"But the Portuguese government blocked the deal with its Class A, or "golden," share, which it uses as the equivalent of a trump card in extreme circumstances."

It was the first time ever that this instrument was used.

It merely delays the deal, it doesn't block it.

digits 12/5/2012 | 4:30:59 PM
re: Telefónica's $8.8B Brazilian Deal Blocked

It seems the weight of pressure is with Telefonica, but the Portuguese government did not use its Golden Share to delay a deal, it used it to vote against accepting Telefonica's offer. 

So until that golden share vote is over-ruled, the deal, on the terms offered by Telefonica, is blocked. 

jps1024 12/5/2012 | 4:30:58 PM
re: Telefónica's $8.8B Brazilian Deal Blocked

True. The intent of the government was to block the deal, but it seems very likely that the golden share instrument will have to go away soon (next month?!). And because Telefónica has extend the validity period of the offer, in practical terms the government action is nothing but delaying the inevitable.

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