Vivendi is offering $2.9 billion for Brazilian telecom operator GVT in a move that puts it head-to-head with Telefonica in Latin America's biggest market and sparked talk of a possible counter bid.
Vivendi Chief Executive Jean-Bernard Levy told Reuters in an interview the deal to buy the small but rapidly growing fixed-line operator would slightly boost earnings from next year. It would not impact the firm's credit rating or dividend policy, he said.
"The deal will allow us to enter a promising country at a very reasonable price," he said. "We won't make any investment in Brazil or elsewhere that would put those in danger." Vivendi shares were down 2.5 percent by 1240 GMT, putting them among the leading decliners on a broadly flat French CAC 40 index. Telefonica was up 0.8 percent.
The French entertainment and telecoms group said on Wednesday it would bid 42 reais per share for 100 percent of GVT's capital, a 15.8 percent premium over GVT's closing share price of 36.26 reais on Tuesday.
The move into Brazil, which GVT's controlling shareholders backed by agreeing to tender part of their holding, fits with Levy's strategy of seeking growth in emerging markets. But Vivendi might not end being the only suitor for GVT, analysts said, and that could raise the price.
Many European operators, including Vodafone and France Telecom, have adopted expansionist strategies in emerging markets, pushing up prices for telecoms assets in such markets in recent years. "Telefonica could make a counter bid for GVT and we think it would be a better fit (than Vivendi)," UBS analyst Polo Tang said in a note to investors.
Levy would not say whether he expected other bidders to emerge. Telefonica, whose spokesman declined to comment on the speculation, shares control of Vivo (VIVO4.SA), Brazil's No 1 wireless carrier, with Portugal Telecom (PTC.LS). The Spanish firm also owns Telesp, Brazil's No 2 fixed-line phone company.
Even if Vivendi's bid succeeds, it's likely to face an uphill battle in Brazil, analysts said. GVT competes with much larger and established players like Telmex, and TeleNorte and Telefonica's Telesp. GVT also needs to invest massively to build its network in the coming years and expand into mobile services.
"All the other groups have a much longer record in the country than Vivendi, deep pockets and operations in fixed and mobile," said Charles Bedouelle, Exane BNP Paribas analyst, in a research note. Telefonica has a 31 percent market share in Brazil, according to UBS. Fixed-line telephone and broadband firm GVT has just 4 percent, with 2.3 million customers and revenue of $800 million last year, but is growing rapidly.
Vivendi said GVT's controlling shareholders Swarth Group and Global Village Telecom have agreed to sell it at least 20 percent of outstanding shares. They are also ready to vote to change GVT's bylaws to remove an anti-takeover provision. Vivendi said its offer would only go ahead if it obtained at least 51 percent of GVT's capital. It is also subject to Vivendi board approval and undertaking due diligence before October 16.
Brazil is home to one-third of Latin America's fixed-line and mobile phone customers, according to market research firm Idate. Telecom revenue grew by 10 percent in Latin America last year.
Levy said Vivendi was attracted by GVT's high-growth rates and not discouraged by the fact the group only holds a small market share. "GVT has a lot of work to do to cover the whole country, but it is rapidly taking market share from the historical operator," said Levy.
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