By Carla Mozee
Vivo Participacoes SA shares outperformed the broader equity
market in Brazil Tuesday after one of the partners in the joint
venture that operates the mobile-phone operator sought to take full
control of the company.
Vivo's (VIV) Brazilian shares jumped 8% to 49.17 reals ($27.72),
moving toward their best percentage advance since early-December
2008, after Portugal Telecom SA (PT) said it received an
unsolicited offer for its 50% stake in Vivo from Spain's Telefonica
SA (TEF), its partner in Vivo.
The bid of 5.7 billion ($7.3 billion) is nearly 32 times
projected 2010 earnings, according to broker Credit Suisse, which
has an outperform rating on Vivo. Portugal Telecom's board has
rejected the offer, saying that Vivo is important for its business
strategy.
Vivo is the largest wireless provider in Brazil and counts
Mexican wireless provider America Movil's (AMX) Claro brand as a
key rival in Latin America's biggest telecommunications market.
Cell phone subscriptions in Brazil stand at about 180 million,
which means that more than 90% of people living in the country have
mobile phones.
Telefonica's bid comes as America Movil is moving to complete a
merger deal under which it could consolidate its own telecom
interests in Brazil, an important growth market for the
company.
Vivo also competes for business with TIM Participacoes (TSU),
which is run by Telecom Italia SpA (TI), and Oi (TNE). Shares of
TIM climbed 6.4% and Oi shares gained 3.6%.
UBS Pactual analyst Tomás Lajous said Telefonica may raise its
bid for the Vivo stake or opt to bid for all of Portugal Telecom.
It may also remain partners with Portugal Telecom and merge Vivo
with Telefonica's Brazilian fixed-line company, Telesp , or decide
to maintain status quo.
The latter scenario, however, is unlikely "given that [Portugal
Telecom's] minority shareholders can challenge the board," wrote
Lajous.
Meanwhile, Brazil's Bovespa equity index fell 0.5% in see-saw
trade as investors considered the possibility of rate hike in China
after inflation accelerated in April, and as lending by banks
surged nearly 30% faster than forecast.
China is Brazil's biggest trading partner and a rate hike fuels
concerns that demand for Brazilian products may slowdown if China
moves to cool robust economic growth.
At the same time, Brazil inflation is rising. A report released
Tuesday showed that consumer prices in the city of Sao Paulo rose
0.49% in four weeks through May 7. In the same period in April,
consumer prices rose 0.39%.
Investors also took another look at a nearly $1 trillion
financial-aid package for euro-zone nations. News of the package
crafted by the European Union and the International Monetary Fund
sparked a rally in global equities on Monday which pushed the
Bovespa up 4.1%.
Steel stocks paced the decline on the Bovespa on Tuesday, with
shares of Gerdau (GGB) off 1%, MMX Mineracao down 3.6% and Vale
(RIO) lower by 1.7%.
Earlier Tuesday, broker Stifel Nicolaus started coverage on iron
ore giant Vale with a hold rating on the company's U.S.-listed
shares.
The long-term fundamentals for iron ore demand remain intact
"but we anticipate near-term headwinds like a strengthening dollar
and narrowing margins at Chinese steel mills could negatively
impact iron ore pricing," wrote Stifel Nicolaus analyst Paul
Massoud.
"As a result, we prefer to wait for a more attractive entry
point, which we think will appear," later this year or in early
2011.
Petrobras shares (PBR) fell 1.1%.
In Mexico, the IPC index fell 0.5% to 32,118. Argentina's Merval
lost 0.4%, off session lows. Chile's IPSA rose 0.3% to
3,862.33.