Telefónica and PT Reach Agreement on Vivo Sale

After months of tense negotiations, Telefónica and Portugal Telecom (PT) have reached an agreement on Brasicel, the 50:50 joint venture that controls Brazilian leading operator Vivo. This morning, in an official filing sent to Spanish securities regulator, Comisión Nacional del Mercado de Valores (CNMV), Telefónica confirmed it will acquire PT's 50% stake in Brasicel, gaining control of 60% of Vivo. According to Spanish financial daily Expansión, the deal will close for 7.5 billion euro (US$9.8 billion), 32% above Telefónica's initial bid in May. Trading in PT shares has been suspended and the boards of the two Iberian companies are expected to approve the offer today.

In a parallel operation PT is set to reach an agreement to acquire a 20–25% stake in Brazilian telco Oi. The operation secures PT's presence in Brazil, a priority for the Portuguese government and the main reason for the failure of Telefónica's previous bids for Brasicel (see Brazil: 1 July 2010: Portuguese Government Uses Golden Share to Block Telefónica's Offer for Vivo). According to Portuguese financial O Jornal de Negocios, negotiations are still in progress and details will not be announced until Telefónica and PT close the Vivo deal.

Outlook and Implications

• A Solution That Suits All: The Portuguese government, which until now had opposed the move, would be happy to raise its veto on Telefónica's offer now that PT's permanence in Brazil is secured with its stake in Oi. In fact, the Portuguese government had made very clear that it would not get rid of Vivo as it was a key part of PT's strategy in Brazil. The Brazilian government has also shown its satisfaction with the deal, which will not interfere with its plans to ensure that Oi remains majority-owned by domestic entities. The company is the result of the government-supported merger of competing fixed-line carriers Oi and Brasil Telecom (see Brazil: 28 April 2008: Oi Signs Brasil Telecom Takeover Deal for US$3.5 bil. and Brazil: 24 April 2009: Oi Begins to Operate in Brasil Telecom's Area Under its Own Brand). The merger resulted in the country's largest integrated telecoms company, with 21.1 million fixed lines in service, 4.3 million broadband accesses, and 36.6 million mobile clients by the end of March 2010. The merger operation received the active support of the Brazilian government, which favoured the creation of a national champion (see Brazil: 23 June 2010: Shareholders' Agreement Protects Oi from Hostile Takeover Bids).
• World Strategy: With this agreement Telefónica strengthens its footprint in Brazil, Latin America's most dynamic market, and confirms its position as one of the world's leading telecom operators. Brazil’s strategic importance to its business has driven Telefónica’s pursuit of a deal with PT. The Spanish operator needs to add mobile capabilities to its fixed-line unit, Telesp, if it wants to maintain its status in Brazil, particularly now that its regional mobile rival, América Móvil (Claro Brasil), has announced plans to combine its operations with those of its sister fixed-line company, Embratel, controlled by Telmex Internacional (see Latin America: 14 January 2010: América Móvil Announces Bid for Carso Global Telecom). The consolidation is expected to bring cuts in administrative and network costs, as well as allow the launch of multiple-play packages of wireless, land-line phone, internet, and cable TV services. The Brasicel acquisition closes a very successful five-year period of strategic acquisitions for Telefónica, which began in 2005 with the O2 acquisition and its entry into the Chinese market through China Netcom, which was eventually merged with Unicom (see China: 22 October 2009: China Unicom, Telefónica Complete Stake Swap and Europe Regional: 31 October 2005: Telefónica to Purchase O2 for US$31.6 bil.). In 2007, Telefónica reinforced its European presence by becoming a shareholder in Telecom Italia (see Italy: 26 October 2007: New Era Dawns as Telefónica-Led Consortium Seals Telecom Italia Takeover Deal).