Global Insight Perspective | |
Significance | Telefónica has declared its interest in gaining exclusive control of Brazilian operator Vivo and has made an unconfirmed 3 billion euro offer for Portugal Telecom's 50% stake. |
Implications | If Portugal Telecom accepts the bid, it will lose its Brazilian assets and share of the world's fifth-largest mobile market, following last month's unsuccessful friendly bid for Brazil's Telemar. |
Outlook | Telefónica has denied the merger of its Brazilian operations with those of Telecom Italia, but is looking at cutting back expenses by sharing infrastructure with TIM Brasil in this highly competitive market of 105 million mobile users. |
Spanish telecoms giant Telefónica has made a 3 billion euro (US$4.09 billion) offer to acquire Portugal Telecom's (PT) 50% stake in Brazilian mobile operator Vivo, the Financial Times reports. This would give Telefónica full control of the southern hemisphere's largest mobile services provider, jointly run by the incumbent operators of Spain and Portugal. Telefónica's executive chairman, César Alierta, said that PT needs to reply to Telefónica's offer by August 2007. He also added, "Telefónica is mainly focusing on organic growth after a series of bold acquisitions in Europe and Latin America," but refusing to disclose details of the offer. PT has not yet commented on the issue.
The Spanish group showed interest in gaining exclusive control of its Brazilian assets last year, linked to SonaeCom's bid for the takeover of a 50.01% controlling stake in rival PT. At the time, PT was seriously considering proceeding with divestment from Vivo in order to concentrate more on its domestic market, where its fixed-line business was suffering from declining revenues (see Brazil: 25 July 2006: Telefónica Eyes Portugal Telecom's Stake in Vivo). Telefónica decided to support SonaeCom's bid, particularly after rumours that the Spanish group was willing to trade its 10% stake in PT for the opportunity to take over Vivo. Sonae's president, Belmiro de Azevedo, confirmed that his company would sell PT's 50% stake in Vivo to Telefónica if SonaeCom's bid was successful, which caused mixed reactions over the former's role in PT's takeover bid, as well as irreversible damage to their relationship (see World: 2 June 2006: Sonae to Sell Vivo's Stake to Telefónica Móviles if It Acquires Portugal Telecom and Portugal: 4 September: Mixed Views on Telefónica's Role in Portugal Telecom Takeover).
In an interview with the state-owned RTP television channel, PT's chief executive, Henrique Granadeiro, suggested that both companies may have to part ways. "Both companies will have to talk and will probably come to the conclusion that it is best for each to go their separate ways," he said. Similarly, PT's second-largest shareholder after Telefónica, Banco Espirito Santo (BES), was livid that Telefónica's decision may have been influenced by the desire to take over PT’s stake in Vivo. "Telefónica's position was extreme and it has become an element that no longer makes sense for PT policy, which aims to keep investing in Brazil and in Vivo," said Ricardo Salgado, chief executive officer (CEO) of BES. SonaeCom’s chance of taking over its rival collapsed on 2 March 2007 as the latter's shareholders voted to retain the 10% ownership limit, which together collapsed Telefónica's chance to gain full control of Vivo (see World: 5 March 2007: SonaeCom’s Takeover Bid for Portugal Telecom Collapses). In May 2007, PT launched a friendly bid for Brazil's largest telecoms operator, Telemar, which if successful would offer PT access to fixed and mobile operations in South America's largest market and an alternative to the 50:50 joint venture with Telefónica on Vivo (see Brazil: 30 May 2007:Portugal Telecom Plans a Bid for Brazil's Telemar). However, preliminary discussions ceased a few days later due to a rejection of PT's offer by certain shareholders of the Brazilian carrier (see Brazil: 5 June 2007:Brazil's Telemar Rejects Portugal Telecom's Acquisition Offer).
Outlook and Implications
- Foreseen Growth the Motive: According to the latest market data released by the Brazilian telecoms regulatory authority, Agência Nacional de Telecomunicações (Anatel), the number of mobile accesses at the end of May 2007 surpassed 105 million, which represents a 13.76% year-on-year (y/y) growth compared to the 25.27% increase recorded in the previous year (see Brazil: 20 June 2007: Mobile Accesses Surpass 105 mil. in Brazil During May). As a result of these recent additions, Brazil’s mobile penetration rate stood at 55.68% at end-May 2007, which is 2.44 percentage points higher than that at the end of last year. Vivo remains the market leader with 28.39% market share, followed by TIM (25.72%), Claro (24.33%), and Oi (12.92%). Although Brazil has recently become the world's fifth-largest mobile market, passing Japan in the rankings, there is still ample space for growth, particularly in under-developed states of the north.
- Creation of a Super-operator is Denied: The Spanish telecoms group has repeatedly denied rumours that it is planning to merge its Brazilian assets with those of Telecom Italia (TIM Brasil) following its acquisition from Telefónica and a consortium of Italian investors of an investment vehicle, Olimpia, which holds an 18% stake in Italy's Telecom Italia, because Anatel would object (see Italy: 30 April 2007: Telefónica Buys Into Telecom Italia in US$6.2-bil. Olympia Deal). However, Telefónica has not ruled out an industrial partnership with Telecom Italia, which would see the two companies share infrastructure, with potential annual savings of 500 million euro (US$681 million) for each of them for the next four years.