Telefonica’s GVT Bid Said to Be Seen by Regulators as Good Step

Aug 06, 2014 5:22 am ET

Aug. 6 (Bloomberg) -- Telefonica SA’s offer to buy Vivendi SA’s GVT unit would be an improvement over the current state of affairs in Brazil’s market, though the transaction would still have to overcome regulatory hurdles, said a government official with direct knowledge of the matter.

Vivendi said yesterday its board will consider the $9 billion offer, which includes shares of Telefonica’s Brazilian phone unit and an option to acquire most of Telefonica’s stake in Telecom Italia SpA -- a carrier that also has Brazilian wireless operations.

The deal would be a step in the right direction for Telefonica to comply with Brazil antitrust rulings, since it paves the way for the company’s full exit from Telecom Italia, according to the government official, who asked not to be identified since the views aren’t public.

Telefonica, Brazil’s largest wireless provider, has been grappling with how to adjust to the December rulings, which called into question its role as a shareholder of Telecom Italia, the owner of the No. 2 mobile carrier in the country. Buying GVT would help Telefonica address the issue while also expanding in the fast-growing Brazilian market for high-speed Internet.

Brazilian antitrust agency Cade said in December that Madrid-based Telefonica had to reduce its stake in Telecom Italia and, a day later, said the Spanish carrier must completely exit Telecom Italia if it wants to remain in control of its own Vivo unit in Brazil. The two rulings derived from different cases involving Telefonica.

Reducing Holdings

To acquire GVT from Paris-based Vivendi, Telefonica would pay 11.96 billion reais ($5.3 billion) in cash and shares in Telefonica Brasil SA. Vivendi would also get rights to buy a stake of about 8 percent in Telecom Italia from Telefonica, reducing the Spanish company’s holdings to almost zero.

Regulators would have to review whether Vivendi could hold minority stakes in Telefonica Brasil and Telecom Italia at the same time, the official said.

To include Telecom Italia shares in its offer for GVT, Telefonica must win approval from Brazilian regulators for the dissolution of Telco SpA, the holding company through which Telefonica indirectly owns its stake in the Milan-based phone carrier, the official said. The plan for other Telco shareholders to exit the holding company was presented to Brazil telecommunications regulator Anatel last month and still hasn’t been approved by Brazil’s antitrust regulator, Cade. This means Telefonica’s offer includes shares it doesn’t officially own yet, the official said.

Press officers from Cade and Anatel said the agencies won’t comment on the offer for GVT until they have been formally notified. Telefonica’s Brazil press office didn’t respond to questions about regulatory matters, instead referring to a statement that the GVT proposal reaffirms Telefonica’s commitment to Brazil. Tim’s press office didn’t respond to an e- mail sent after business hours.

Switching Tactics

By presenting the proposal to Vivendi, Telefonica showed it’s switching tactics from an earlier plan to pressure Telecom Italia to sell its Brazilian unit, Tim Participacoes SA. Telefonica and Oi SA -- the country’s No. 4 wireless carrier -- discussed a plan earlier this year to break up Tim, according to people familiar with the matter.

A move to reduce the number of national competitors in the wireless market to three from four wouldn’t be well received by the government, the official said.

When analyzing changes in the market, Brazilian regulators could take future investment plans into account, the official said.