GVT to Oppose Tim Breakup as Owners Locked in Brazil Discord

Jun 02, 2014 4:21 pm ET

(Updates with closing stock prices in 11th paragraph.)

June 2 (Bloomberg) -- GVT, the Brazilian broadband provider owned by Vivendi SA, said it would be ready to work with the government to stop competitors from breaking up the country’s second-largest wireless carrier Tim Brasil.

A split of Tim “would be a total disservice to society and would do irreparable and unacceptable harm to the Brazilian market,” GVT said in a statement to Bloomberg News. “If necessary, GVT will work with the government and the Anatel regulator to highlight risks and avoid a split,” it said.

Telefonica SA and Oi SA are exploring a plan to break up Tim as early as this year, people familiar with the matter said last week. Marco Patuano, chief executive officer of Telecom Italia SpA, which owns 67 percent of Tim, is in favor of keeping Tim and expanding it through an eventual merger with GVT, the people said. Telefonica is Telecom Italia’s largest shareholder with an almost 15 percent indirect stake. Oi is Brazil’s fourth- biggest mobile carrier.

GVT hasn’t participated in talks involving Rio de Janeiro- based Tim over a merger or any other type of corporate restructuring, according to GVT’s statement.

The discord between Telefonica and Telecom Italia heats up years of conflict between the two companies in Brazil, where Telefonica controls the biggest carrier under the Vivo brand. The most recent push to sell Tim comes as the Telefonica-led investor group that owns 22.4 percent of Telecom Italia is due to be broken up this month. At least two of the three financial investors are planning to exit.

Comissario Mercantil

Telefonica and Oi executives discussed as recently as in April a potential deal to split Tim among Oi, Vivo and Claro, owned by Carlos Slim’s America Movil SAB, said the people. One scenario would involve the use of a financial vehicle known in Brazil as Comissario Mercantil to acquire Tim and then split the business among the other operators, the people said. Grupo BTG Pactual would act as the agent, two of the people said.

Oi would lead the negotiations because as a local provider it would stir less controversy in Brazil, the people said. A transaction may happen after general elections in October, they said. Patuano told analysts on March 7 that if a “jumbo offer” for Tim comes up, Telecom Italia would evaluate it.

Representatives for Telefonica, Telecom Italia, America Movil and BTG declined to comment. An Oi official had no comment.

Capital Increase

Vivendi entered Brazil in 2009 by acquiring a controlling stake in GVT for $4.18 billion, topping a rival bid by Telefonica. GVT, which emerged in 1999 during the privatization of Brazil’s telecommunications industry, had 12 percent of the country’s broadband market and about 9 percent of its landline market in 2013, according to Vivendi’s annual report.

Both GVT and Tim could attract interest from AT&T Inc. after the U.S. carrier agreed to acquire DirecTV, which has more than 5 million pay-TV subscribers in Brazil, Deutsche Bank AG analysts wrote in a note last week.

Vivendi climbed 0.9 percent to close at 19.41 euros in Paris. Telecom Italia rose 1.7 percent 92.6 cents in Milan, while Telefonica was little changed at 12.31 euros in Madrid. Tim, which trades under the name Tim Participacoes SA, rose 1.2 percent to 12.31 reais in Sao Paulo.

Doesn’t Fit

GVT’s comments support suggestions that Vivendi may be seeking options for its Brazilian unit, Ian Whittaker and Lisa Hau, analysts at Liberum Capital Ltd., said in a note today. GVT is mainly a “telecoms provider” and as such doesn’t fit in with Vivendi’s long-term focus on media and content, according to the note. A representative for Paris-based Vivendi declined to comment.

Tim, with almost 74 million customers at the end of April, has an enterprise value including debt of about 30.5 billion reais ($13.6 billion), data compiled by Bloomberg show.

Oi raised 8.25 billion reais in a capital increase last month as part of its merger with Portugal Telecom SGPS SA. The transaction put Oi on a more solid footing to be able to participate in consolidating Brazil’s phone companies, one of the people said. BTG was the lead underwriter of the stock sale and raised a 2 billion-real fund to help support the deal.

“It’s clear Telefonica still has all the interest to prepare the ground for a potential breakup of Tim Brasil in order to eliminate an inconvenient rival,” said Andrea Rangone, a professor of business strategy at Milan’s Politecnico. Still, a merger with GVT would make more sense because it would allow Tim to add TV offers, he said.

--With assistance from Cristiane Lucchesi in Sao Paulo.