5th UPDATE: Portugal Vetoes PT Vivo Stake Sale To Telefonica
June 30 2010 - 7:14PM
Dow Jones News
The Portuguese government Wednesday vetoed an EUR7.15 billion
bid from Spain's Telefonica SA (TEF, TEF.MC) to buy out Portugal
Telecom SGPS SA (PT, PTC.LB) from the two companies' Brazilian
joint venture, in a surprise move that sets the stage for a
confrontation with European Union authorities.
Portuguese Prime Minister Jose Socrates defended his decision to
use Portugal's "golden share" to veto the deal, saying the country
has a strategic interest in maintaining the size of its largest
company by market value.
"The offer was not in the interest of PT," Socrates told
Portuguese television. "The government is protecting the interests
of the country."
PT and Telefonica have been locked in a power struggle over
Brazilian mobile operator Vivo Participacoes SA (VIV, VIVO4.BR),
which the two Iberian telecommunications companies control through
a joint venture that owns 60% of the company.
Both PT and Telefonica see Vivo as key to their future growth
prospects as they face declining revenue in their mature home
markets and are suffering the lingering impact of a severe
recession.
"This outcome is simply horrible for everyone and the only
likely thing from here is litigation," Bernstein Research analyst
Robin Bienenstock said in a note to investors. "We would also
caution that we think that Telefonica has now seriously overpaid
for this asset and that this price is a reflection of their
domestic weakness."
Telefonica late Tuesday raised its offer for PT's indirect stake
in Vivo for the second time, in a last-ditch attempt to win over PT
shareholders reluctant to exit the coveted Brazilian market. The
Spanish company's initial bid of EUR5.7 billion was swiftly
rejected by PT's board last month. It then raised the offer to
EUR6.5 billion and finally to EUR7.15 billion.
The government's veto comes ahead of an expected ruling by the
European Court of Justice next week on the legality of Portugal's
golden share in PT, which is designed to prevent a hostile
takeover.
European authorities claim Portugal's ownership of such a golden
share breaches the principle of the free movement of capital.
About 74% of PT shareholders voted in favor of the Spanish
company's offer at PT's extraordinary general meeting.
Telefonica said in a press release that the decision from the
Portuguese government and the use of its so-called golden share in
PT was illegal and in violation of regulations in Portugal and the
EU.
Telefonica also said it's extending the acceptance period of its
bid to July 16.
PT Chairman Henrique Granadeiro said Wednesday the company's
directors didn't think the government's golden share could be used
in this way.
"The board has repeatedly said that it was convinced the golden
share wasn't applicable in this situation," Granadeiro told
journalists after the extraordinary meeting. The decision is based
on legal interpretations "and we respect the decision," he
added.
In a late press release, PT said its board of directors, which
met after the company's EGM, has agreed to seek legal clarification
on the government's decision to veto the sale of its Vivo
stake.
The board "has considered that there are some legal matters that
require clarification and, as a result, will be obtaining legal
opinions," PT said.
Once the company gets such legal elucidation, it will schedule a
new board meeting, it added.
There is a good chance that Telefonica "will be able to table
[present] the offer again if the golden share is ruled illegal,"
said ING analyst Georgios Ierodiaconou.
PT shares dropped sharply after a trade halt was lifted
following the shareholders meeting, falling almost 6% to EUR7.88.
Telefonica shares, in turn, were down 0.1% to EUR15.10 at 1430 GMT.
PT's American depositary shares closed down 1.1% at $9.92, while
Telefonica's edged up 0.6% to $55.53.
Both Iberian telecommunications companies are increasingly
dependent on emerging economies like Brazil, where a young
population and low mobile penetration rate makes it easier to pick
up new wireless and Internet customers.
Brazil has about 183 million cellphone accounts, and Vivo is the
market leader with a market share of 30%. But rivals are close
behind; Claro--the local unit of Carlos Slim's America Movil SA
(AMX, AMX.MX)--Oi, and Telecom Italia SpA's (TI, TIT.MI) TIM
Participacoes (TSU, TCSL4.BR) are all moving to offer combined
fixed-line, Internet, television and cellphone services to extend
their grip on the market.
-By Jeffrey T. Lewis, Santiago Perez and Jonathan House; Dow
Jones Newswires; enza.tedesco@dowjones.com
(Enza Tedesco contributed to this article.)
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