Portugal Telecom rejects offer for Brazilian stake

The Portugal Telecom board said late Monday that it had rejected an "unsolicited, binding and unconditional offer" from a partner, Telefónica, to buy its interest in their Brazilian joint venture, Vivo, for 5.7 billion euros ($7.3 billion).

The board called Vivo essential to Portugal Telecom's strategy, and the sale of its stake would undermine its "prospects for long-term growth." The offer expires on June 6.

In the meantime, Telefónica said it was considering an offer to buy 1.1 percent of Vivo’s ordinary shares at a price about 80 percent of the value of each Vivo share owned by Brazilcel, adding another 600 million euros to its acquisition attempt.

Portugal Telecom's shares rose 12.67 percent in midmorning trading Tuesday, after leaping nearly 18.7 percent on Monday, before the offer was announced and amid a general surge after the European Union detailed its bailout plan for the sovereign debt crisis.

With 15.7 million users, Vivo is the biggest cellphone operator in Brazil, itself the largest market in South America. Portugal Telecom owns 50 percent of Brazilcel, a company based in the Netherlands that controls 60 percent of Vivo.

Vivo's user base grew 18.2 percent in the first quarter of 2010, compared to the same period a year earlier, according to Portugal Telecom’s recent earnings report. Last week, the Portuguese company posted profit growth of 36.7 percent for the quarter, to 166 million euros, but said its earnings were being driven by its overseas units, and slipping at home.

Vivo's growth in operating revenue, while an impressive 25.5 percent year-on-year measured in euros, is only 3.7 percent in Brazilian reais, as the emerging country's currency has strengthened and Europe's declined.

Vivo shares rose 6.09 percent on Monday in Sao Paolo.

With its offer to Portugal Telecom, the Spanish giant Telefónica is pursuing a long-term plan to increase its share of the Brazilian market. It lost a bidding war to Vivendi last November to acquire GVT, another Brazilian carrier.

Telefónica shares fell Tuesday by 0.35 euros, or 3.49 percent, to 15.95 euros in Madrid.

(Published by The New York Times – May 11, 2010)

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