2nd UPDATE: Portugal Vetoes PT Vivo Stake Sale To Telefonica
01 July 2010 - 12:43AM
Dow Jones News
The Portuguese government Wednesday vetoed a EUR7.15 billion bid
from Spain's Telefonica SA (TEF) to buy out Portugal Telecom SGPS
S/A (PT) from the two companies' Brazilian joint venture in a
surprise move that sets the stage for a confrontation with European
Union authorities.
Portuguese Prime Minister Jose Socrates defended his decision to
use Portugal's golden share to veto the deal, saying the country
has a strategic interest in maintaining the size of its largest
company by market value. "The offer was not in the interest of PT,"
Socrates told Portuguese television. "The government is protecting
the interests of the country."
PT and Telefonica have been locked in a power struggle over
Brazilian mobile operator Vivo, which the two Iberian telecoms
control through a joint venture that owns 60% of the company.
Both PT and Telefonica see Vivo as key to their future growth
prospects as they face declining revenue in their mature home
markets and are suffering the lingering impact of a severe
recession. They are increasingly dependent on emerging economies
like Brazil, where a young population and low mobile penetration
rates makes it easier to pick up new wireless and Internet
customers. Brazil has about 183 million cellphone accounts, and
Vivo is the market leader with a market share of 30%.
Telefonica late Tuesday raised its offer for PT's indirect stake
in Vivo for the second time. The Spanish company's initial bid of
EUR5.7 billion was swiftly rejected by PT's board last month. It
then raised the offer to EUR6.5 billion.
The government's veto comes ahead of an expected ruling by the
European Court of Justice next week on the legality of Portugal's
golden share in PT, which is designed to prevent a hostile
takeover.
European authorities claim Portugal's ownership of such a golden
share breaches the principle of the free movement of capital.
About 74% of PT shareholders voted in favor of the Spanish
company's offer at PT's extraordinary general meeting. A Telefonica
spokeswoman declined to comment on what the government's veto will
mean for Telefonica's strategy.
"We have to study the decision first," the spokeswoman
added.
PT Chairman Henrique Granadeiro said Wednesday the company's
directors didn't think the government's golden share could be used
in this way.
"The board has repeatedly said that it was convinced the golden
share wasn't applicable in this situation," Granadeiro told
journalists after the extraordinary meeting. The decision is based
on legal interpretations "and we respect the decision," he
added.
-By Jeffrey T. Lewis, Santiago Perez and Jonathan House; Dow
Jones Newswires; djmadrid@dowjones.com; 34 91 395 8120
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