Portugal Telecom's Shares Gain On Sweetened Telefonica Bid
02 June 2010 - 8:07PM
Dow Jones News
Portugal Telecoms SA's (PT, PTC.LB) shares rose Wednesday after
its Spanish peer Telefonica SA (TEF, TEF.MC) raised its bid for
PT's indirect stake in Brazilian mobile operator Vivo Participacoes
SA (VIV) to EUR6.5 billion, paving the way for the deal, analysts
say.
Portugal Telecom's shares rose as much as 8% in early trade and
at 0903GMT were up 1.9% at EUR8.62 in an overall lower Portuguese
market. Telefonica's shares were down 1.4% at EUR15.39.
"Telefonica has made an offer Portugal Telecom cannot refuse,"
said Robin Bienenstock of Bernstein adding the deal would be
"transformational" for PT shareholders. increasing the value of the
shares by between 20% and 40% from Tuesday's closing price of
EUR8.47.
"Telefonica's offer is a smart move," ING's Georgios
Ierodiaconou said. "The improved offer is high enough to entice
Portugal Telecom's institutional shareholders to accept the offer
and low enough to allow Telefonica to acquire the asset at a level
that leaves significant upside."
Telefonica had previously offered EUR5.7 billion for PT's half
of Brasilcel, a holding company that owns about 60% of Brazilian
cell phone operator Vivo, an offer which PT rejected.
The sweetened bid offers Portugal Telecom two alternatives. It
can either sell its entire stake immediately or sell one third now
and the remainder at any time over the next three years at PT's
sole discretion.
Late Tuesday, Portugal Telecom said it had received the
sweetened offer and would call an extraordinary general meeting to
allow its shareholders to vote on the offer, but added the bid
didn't fully reflect the strategic value of the asset.
Telefonica's offer is the fruit of weeks of meetings with
Portugal Telecom's key shareholders who asked the company to raise
its offer, a person close to the situation said.
Telefonica has also been in talks with Portugal Telecom since it
launched its initial bid last month, the person added.
Telefonica's offer represents a 130% premium to the fair value
of PT's Vivo stake, Bernstein's Robin Bienenstock said, adding the
revised offer shows "how badly Telefonica needs to reset the clock
rather than how great the deal is."
For both companies, exposure in Brazil through Vivo is key. Vivo
represented roughly half of Portugal Telecom's revenue in the first
quarter, and was the only segment that showed significant revenue
growth.
Telefonica meanwhile, wants to merge Vivo with its Brazilian
fixed line operator Telecomunicacoes de Sao Paulo (TLPP4.BR), or
Telesp, to increase its scale in Brazil and unlock EUR2.8 billion
of synergies.
Telefonica and Portugal Telecom face declining revenue in their
mature home markets and the lingering impact of the severe
recession, making them increasingly dependent for growth on
countries like Brazil, where mobile penetration rates are still low
enough to pick up new wireless and Internet customers.
The person close to the situation said PT could use some of the
cash from the sale of its Vivo stake to buy a stake in rival
Brazilian company Brasil Telecom (BRT03.BR, BRT04.BR).
Company Web Site: http://www.telefonica.com
-By Jason Sinclair, Dow Jones Newswires; 34 91 395 81 27;
jason.sinclair@dowjones.com
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