Telefonica Board Said to Discuss Improving GVT Bid This Week

By Daniele Lepido, Rodrigo Orihuela and Manuel Baigorri

Telefonica SA (TEF)’s board plans to discuss raising its offer for Vivendi SA (VIV)’s GVT, potentially valuing the Brazilian broadband unit at as much as 8 billion euros ($10.6 billion), according to a person with knowledge of the matter.
The revised bid could be presented ahead of Vivendi’s scheduled board meeting on Aug. 28, and before Telecom Italia SpA (TIT) formalizes a rival offer, the person said, asking not to be identified because the deliberations are confidential. A representative for Madrid-based Telefonica declined to comment.
GVT would allow the suitors to bolster their Brazilian wireless businesses as phone-service revenue drops in Spain and Italy amid intense competition. Telefonica winning
GVT could prompt Telecom Italia to sell its Brazilian mobile unit, said Berenberg Bank analyst Paul Marsch -- an opportunity for Telefonica to further strengthen its business in the country.
“It makes a lot of sense for Telefonica to push it if they feel that letting Telecom Italia get hold of GVT might close the door on a Brazilian mobile consolidation angle,” Marsch said. “That is at least partly what is at play here.”
No final decision has been made, and Telefonica’s board could decide to stick with its current offer, the person said.

Photographer: Martin Divisek/Bloomberg

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Telefonica this month offered 6.7 billion euros, mostly cash, in a proposal to combine Telefonica Brasil SA (VIVT4) with GVT. Telecom Italia is preparing a counterbid valued at as much as 7 billion euros to merge GVT with its Tim Brasil division, people with knowledge of the plan said last week.

Brazil Discord

Telecom Italia erased earlier gains, falling as much as 1.6 percent from its intraday high and trading at 83.6 cents at 1:17 p.m. in Milan. Telefonica rose 0.4 percent to 12.08 euros in Madrid. Vivendi erased earlier losses, gaining 0.4 percent to 19.87 euros in Paris.
The race to buy GVT is the latest twist in a disagreement between Telecom Italia and its shareholder Telefonica over the future of the Italian carrier’s Brazil division. While Telecom Italia Chief Executive Officer Marco Patuano is in favor of keeping Tim Brasil and expanding the unit through a merger with GVT, Telefonica has explored a plan to break up Tim and then split the business among Brazil’s other operators, including Telefonica, people familiar with the matter said in May.
Brazil’s authorities in December called into question Telefonica’s role as Telecom Italia’s largest owner. Brazilian agency Cade said Telefonica had to cut its stake in the Milan-based company and, a day later, said the Spanish carrier must completely exit Telecom Italia if it wants to remain in control of its own Brazil unit, the country’s largest mobile carrier.
As part of its GVT bid, Telefonica offered Vivendi a right to buy a stake of about 8 percent in Telecom Italia, which would bring Telefonica’s holding in the company close to zero.

Media Focus

Vivendi, the French conglomerate that has sold telecommunications assets the past two years to focus on media, beat Telefonica to acquire GVT in 2009. GVT, which emerged a decade earlier during the privatization of Brazil’s telecommunications industry, had 12 percent of the country’s broadband market and about 9 percent of its landline market in 2013, according to Vivendi’s annual report.
Cesar Alierta, Telefonica’s executive chairman, may meet Vivendi Chairman Vincent Bollore today to present the improved offer for GVT, Il Sole 24 Ore reported today, without citing anyone.
Telecom Italia’s board is scheduled to tomorrow to discuss its GVT bid. Vivendi will report earnings after market close on Aug. 28. It said on Aug. 5, after Telefonica’s initial bid, that none of its units are for sale, though its board would consider Telefonica’s offer.

Cash, Stock

Telefonica’s bid came months after Telecom Italia’s Patuano had expressed interest in GVT, people have said. The Spanish company offered 11.96 billion reais ($5.2 billion) in cash plus shares in the enlarged Brazil unit.
Telecom Italia is considering offering Vivendi a 20 percent holding in itself and a stake in the entity that combines the two companies’ Brazilian units, people have said. 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. Telecom Italia’s Tim unit has a market value of about $12 billion.
Vivendi halted a process to sell GVT last year as it couldn’t agree on a price with suitors including DirecTV, the largest U.S. satellite-TV provider, and a group of private-equity firms including KKR & Co. and Apax Partners LLP, people with knowledge of the matter said then. Vivendi was asking 8 billion euros for GVT, the people said.