Telefonica to Buy Vivendi Brazil Unit GVT for $9 Billion

By Marie Mawad and Rodrigo Orihuela

Telefonica SA (TEF) agreed to buy Vivendi SA (VIV)’s Brazilian broadband unit GVT for about 7 billion euros ($9 billion) to increase its challenge to competitors including billionaire Carlos Slim’s America Movil SAB.
Vivendi will receive 4.66 billion euros in cash, a 7.4 percent holding in Telefonica’s Brazilian business and a 5.7 percent stake in Telecom Italia (TIT) SpA, Paris-based Vivendi said today. Madrid-based Telefonica said it’ll help finance the purchase with a capital increase by its Brazilian business.
Telefonica will boost its Brazil broadband market share to about 30 percent by buying GVT, compared with America Movil’s 32 percent and Oi SA’s 27 percent. By selling GVT, Vivendi continues to reduce its phone assets. Vivendi has announced more
than $30 billion of disposals since last year, including the sale of French mobile carrier SFR, to focus on media.
“All in all, good news for Vivendi,” Ian Whittaker, an analyst at Liberum Capital, said in a note. “We expect the next step to be a more concrete outlining of their strategy.”
Telefonica rose 1.7 percent to 12.36 euros at 11:49 a.m. in Madrid, and Vivendi gained 0.7 percent to 19.61 euros in Paris. Telecom Italia rose 1.2 percent to 91.7 euro cents in Milan.

Photographer: Angel Navarrete/Bloomberg

Customers browse mobile handsets on display inside a Telefonica SA store in Madrid, Spain.

Exclusive Talks

The companies reached a deal comfortably before the end of a three-month negotiation period. Vivendi started exclusive talks with Telefonica late last month after the Spanish carrier increased its bid to surpass Telecom Italia’s proposal.
Telefonica is coming back to an asset it knows well. When it bought GVT in 2009 for $4.18 billion, Vivendi beat Telefonica for the business.
“The new Telefonica Brasil resulting from the integration will enhance its leadership as the country’s integrated telecommunications operator, leader in both the mobile and broadband segments, with national coverage and an increased exposure in the high-value segment,” Telefonica said.
Vivendi said it will be liable for taxes of about 500 million euros and expects to complete the deal in the first half of 2015.
A bank debt of about 450 million euros and adjustments in working capital will be deducted from the cash payment, Vivendi said. The 7.4 percent stake in Telefonica Brasil had a stock market value of 2.2 billion euros at Sept. 18.
The Telecom Italia stake that Vivendi will receive is valued at about 1 billion euros. Telefonica exiting the stake, which represents 8.3 percent of Telecom Italia votes, marks an end to the Spanish and Italian phone companies’ seven-year partnership.

Italy Interests

Vivendi, meanwhile, is seeking to strengthen its interests in Italy. The company is pursuing a stake in a unit of former Prime Minister Silvio Berlusconi’s Mediaset SpA (MS) to return to Italy’s pay-TV market after a decade-long hiatus, people familiar with the matter said last week.
Telefonica will subscribe to its Brazilian unit’s capital increase in proportion to its current stake of 74 percent. It will, in turn, finance its participation via its own capital increase.
Telefonica projects savings of at least 4.7 billion euros in Brazil from the combination.
Goldman Sachs Group Inc. and Credit Suisse Group AG advised Vivendi, and JPMorgan Chase & Co. and Banco Itau BBA assisted Telefonica.