Portuguese government blocks sale of Brazilian operator

Reviving a debate about protectionism in Europe, the Portuguese government Wednesday blocked a €7.15 billion bid by Telefónica of Spain to take full control of a Brazilian wireless joint venture it holds with Portugal Telecom.

The use of the government's golden share in Portugal Telecom to stymie an improved offer by Telefónica for the operator, Vivo, came as a surprise to investors in the company, who had voted almost three-quarters of their shares in acceptance of the bid at a shareholders meeting Wednesday. The bid is worth $8.74 billion.

The government's decision risks raising the hackles not only of Telefónica, the flagship operator in neighboring Spain, but also of the European Union.

Antitrust officials in Brussels have been on a longstanding crusade to stop Portugal and other governments from using golden shares to block takeovers on the grounds of national interest.

The European Court of Justice is set to look into whether the government's golden share in Portugal Telecom is legal on July 8. Followers of the court expect it to rule against the Portuguese government.

A senior executive from Portugal Telecom said after the vote Wednesday that "for the time being this is the law and the golden share exists."

The official, who asked not to be named because of the sensitivity of the situation, added: "If Telefónica is not happy with this, it can of course complain."

Further complicating matters, the Spanish operator had threatened to wage a hostile bid for Portugal Telecom if its offer for Vivo was rejected.

Telefónica had been pushing to buy the 50 percent stake Portugal Telecom holds in Vivo, the biggest wireless operator in Brazil. Portugal Telecom, however, had recommended that investors reject the Spanish bid, arguing that remaining in Brazil — where the number of mobile phone subscribers rose 15 percent last year — was essential to the company’s growth.

At the shareholders meeting, Portugal Telecom's chairman also prevented Telefónica from voting its own shares in the Portuguese operator, as well as the shares of two other stakeholders believed to be acting for Telefónica, on the grounds that a vote represented a conflict of interest.

Telefonica's final bid was a significant improvement over the company’s initial offer of €5.75 billion. Still, Portugal Telecom's management, and some shareholders, were reluctant to give up a piece of the fast-growing Brazilian market, particularly when the company faced a stagnating business at home.

"This is not about getting money now but about ensuring a good future," said Reinaldo Vasconcelos, who has been a retail shareholder in Portugal Telecom for 20 years.

He added: "The government did the right thing because we are a small country and we need to have a presence outside, just like Switzerland and all its multinationals."

(Published by The New York Times – June 30, 2010)

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