Aug. 18 (Bloomberg) -- Telecom Italia SpA is preparing an offer of as much as 7 billion euros ($9.4 billion) to outbid Telefonica SA in the race to acquire Vivendi SA’s Brazilian broadband unit GVT, people with knowledge of the plan said.
Vivendi would get a 20 percent holding in Milan-based Telecom Italia and a stake in the entity that combines the two companies’ Brazilian units, said the people, who asked not to be identified because the offer isn’t public yet. Telefonica -- which competes with Telecom Italia in Brazil’s phone market -- offered 6.7 billion euros for GVT earlier this month.
GVT, an Internet-access provider, would be a source of growth for Telecom Italia and Telefonica as phone-service revenue drops in Spain and Italy amid intense competition. Telefonica’s offer for GVT came months after Telecom Italia Chief Executive Officer Marco Patuano had expressed interest in the unit, people with knowledge of the matter have said.
The Brazilian newspaper Folha de Sao Paulo reported Aug. 16 that Telecom Italia was set to make an all-stock bid for GVT valued at as much as 7 billion euros.
Telefonica, which on Aug. 5 offered 11.96 billion reais ($5.3 billion) in cash and shares in its Brazil unit for GVT, put forward its bid after people at the company found out about talks between Telecom Italia and Vivendi, people have said.
In response, Telecom Italia said Aug. 14 that it’s studying whether to suggest an “industrial combination” to Paris-based Vivendi, including joining its Brazilian unit Tim Participacoes SA with GVT. It said no offer has been finalized or made.
Vivendi said that as of Aug. 16 it had received no offer and otherwise had no comment. Telecom Italia, Tim and GVT representatives declined to comment. Telefonica press officials didn’t respond to requests for comment outside regular business hours.
Talks have taken place between Patuano and Vivendi Chairman Vincent Bollore, people have said. The talks already were under way before Madrid-based Telefonica made its bid for GVT.
GVT is working with financial advisers Goldman Sachs Group Inc. and Credit Suisse Group AG on its potential sale, according to two people with direct knowledge of the matter.
A 20 percent stake in Telecom Italia would be worth about 3 billion euros, based on the company’s market value of about 15 billion euros. Tim has a market value of about $11.7 billion.
Responding to Telefonica’s bid earlier this month, Vivendi said none of its units are for sale, though its board will consider the offer at its next meeting. Vivendi’s board is scheduled to meet at the end of this month, in conjunction with the company’s Aug. 28 earnings release.
While Telefonica’s bid is centered on GVT, Telecom Italia has proposed a broader alliance that could include the Italian company distributing content from Vivendi’s media assets, which include pay-TV provider Canal Plus, people have said. Telecom Italia has sought closer ties with broadcasters to expand in program distribution as call prices slump.
Telefonica’s bid, meanwhile, may help it comply with regulatory rulings last year that called into question its role as a shareholder of Telecom Italia. In its proposal to Vivendi, Telefonica would give the French company the right to buy almost all of its stake in Telecom Italia.
Brazilian telecommunications regulator Anatel would have to analyze any merger or change in company structure before a deal can go through, said a press official for the agency who asked not to be named. Brazil’s antitrust regulator, known as Cade, said in an e-mail that it will analyze the case upon receiving notice of a deal.
Brazil has been wary of telecommunications mergers. Earlier this month, Communications Minister Paulo Bernardo reiterated while speaking to reporters in Sao Paulo that the government’s preference is for more companies in the market.
Telecom Italia had its debt rating cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to reverse falling sales. Its net debt amounted to about 27.4 billion euros at the end of June, about twice the company’s market value.
Telecom Italia dropped 1.6 percent to 81 euro cents in Milan on Aug. 14. Vivendi fell 0.5 percent to 19.19 euros on Aug. 15 in Paris, and Telefonica slipped 0.3 percent to 11.72 euros in Madrid. Tim added 0.3 percent to 10.93 reais in Sao Paulo.
--With assistance from Amy Thomson and Manuel Baigorri in London and Rodrigo Orihuela in Madrid.