3rd UPDATE: Telefonica Bids EUR5.7 Billion For PT Stake In Brasilcel
May 11 2010 - 4:51AM
Dow Jones News
Spain's Telefonica SA (TEF) said early Tuesday it has launched a
EUR5.7 billion cash offer for the 50% stake Portugal Telecom
SGPS.SA (PT) owns in Brasilcel NV, in its second attempt in less
than a year to boost its presence in Brazil.
The unsolicited bid, which was sent to the Portuguese
telecommunications group May 6, was unanimously rejected by PT's
board of directors at a meeting Monday. It nevertheless sent
Portugal Telecom's share price soaring more than 20% in early trade
in Lisbon, as analysts speculated on whether Telefonica would
consider sweetening its offer.
Brasilcel is an investment vehicle jointly owned by both
Telefonica and Portugal Telecom which controls 60% of Brazilian
mobile company Vivo Participacoes SA (VIV).
The offer is a rich one, analysts said. According to Telefonica,
it implies a valuation of 112.29 Brazilian reals for each Vivo
voting share owned by PT, a premium of about 145% on the average
share price in the month prior to the offer.
It implies a multiple of 10.9 times Vivo's 2009 earnings before
interest, tax, depreciation and amortization. Vivo is currently
trading on 4.9 times 2009 Ebitda while other Brazilian peers are
trading on 5.6 times Ebitda.
In its offer letter to Portugal Telecom's board, Telefonica said
that if it agreed to a sale, Telefonica would integrate Vivo with
its Brazilian fixed line operator Telesp to create a "superior
integrated operator."
Rival operators in Brazil are moving towards offering so-called
triple and quadruple play to consumers -- fixed line phone,
internet, television and cell phone-- and Telefonica in its letter
touted the merits of such a strategy.
"The offer realizes value for Portugal Telecom shareholders that
cannot be achieved by Portugal Telecom standalone: potential
subsequent Telesp-Vivo integration synergies are unique to the
transaction," said Telefonica in the letter.
Brazil has become increasingly important as a growth platform
for Telefonica because its Spanish home market is suffering from a
long economic recession and because profitability in other Latin
American markets has been hurt by high inflation.
Telefonica tried to bulk up in this fast-growing Latin American
market late last year when it bid for telecoms operator GVT
(GVTT3.BR). However, it lost a $2.8 billion bidding contest to
France's Vivendi SA (VIVDY). Telefonica's offer for Brasilcel,
which is binding and is not subject to any type of condition, will
expire June 6.
As part of its offer, Telefonica said it will launch a separate
bid to buy an additional 3.8% of Vivo shares for an extra EUR600
million.
Portugal Telecom said that Vivo is core to the company's
strategy and "the sale of its stake would be against the long term
growth prospects of PT."
At 0903 GMT, Telefonica's shares were trading down 3.3%, or
EUR0.54, at EUR16.02, in line with the Spanish market. In Lisbon,
PT was trading up 8.5%, or EUR0.61 at EUR7.72.
"For PT, the premium being offered is substantial and we
estimate that PT could in theory sell Vivo and use the proceeds to
buy back 40% of its own equity," said Barclays Capital in a note to
investors. The brokerage added that Telefonica's share price would
likely suffer due to the substantial premium it is offering for
Vivo.
Company Web site: www.telefonica.com
-By Enza Tedesco and Christopher Bjork, Dow Jones Newswires,
djmadrid@dowjones.com
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