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Telecom rivals battle for Vivendi's Brazil broadband unit

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August 28
7:30 AM 2014

The battle over Brazil's telecoms market intensified on Thursday as European competitors Telecom Italia and Telefonica made rival offers for Vivendi's Brazilian broadband business GVT.

Vivendi, which will examine the bids at a Thursday board meeting, must now choose whether to exit its last remaining telecom business after selling off its French and Moroccan mobile operations to focus more on media.

French tycoon Vincent Bollore, who is Vivendi's chairman and largest shareholder, has led the talks with Telefonica and Telecom Italia in recent weeks and his view will weigh heavily in the outcome.

Spain's Telefonica said it had raised a previous 6.7 billion euro bid for GVT to 7.45 billion euros ($9.84 billion), increasing the cash component of the initial offer made at the start of August.

Telefonica, which is indirectly the biggest shareholder in Telecom Italia, would also pay Vivendi with a 12 percent stake in the combined Brazilian entity of which about one third could be exchanged for a 5.7 percent stake in Telecom Italia if Vivendi so chose.

Telefonica said its offer expires on Friday unless it gets exclusive negotiations, in which case it would last for three months.

Telecom Italia said it made a cash-and-share bid that values GVT at 7 billion euros, including 1.7 billion euros in cash, a 16 percent stake in Telecom Italia and a 15 percent stake in the new Brazilian entity.

It needs GVT to shore up its Brazilian mobile operator Tim Participações that has no fixed network, and also to ward off a potential bid from local rival Grupo Oi, which wants to split up Tim between itself, Mexico's America Movil and Telefonica.

A slowdown in Brazil's mobile phone market is forcing the major players in the region to chase higher-value customers through the sort of pay-TV and broadband services that GVT has pioneered in Brazil, a large cash-generating market for both Telefonica and Telecom Italia.

Oi's move also aims to cut the number of mobile operators to three from four, which could blunt competition.

QUICK DECISION SEEN

Vivendi, which owns Universal Music Group and French pay-TV operator Canal Plus, is expected to weigh not just the price and cash on offer from the bidders, but also the strength of the future Brazilian company in which it would own a minority stake.

It must also decide if it wants a stake in Telecom Italia, a heavily indebted former monopoly that earns high profit margins in its home market but needs massive network investment to return to growth.

A person familiar with Vivendi's thinking said late on Wednesday that the French company could make a decision quickly.

"The board may decide to take some time to examine the offers or it could decide to negotiate as a priority with one side," said the person.

Vivendi shares were down 1 percent at 0857 GMT, compared to a 0.4 percent decline in the French CAC-40 index.

The idea that Vivendi would consider taking a stake in Telecom Italia after spending so long trying to focus on media has left some investors questioning Bollore's motivation.

"On paper, it's clear-cut that the Telefonica bid looks more attractive since it has a higher value and raised the cash component," said Kepler Securities analyst Conor O'Shea.

"But the Bollore factor is a wildcard - he has business interests in Italy, so some wonder if there is a reason he and Vivendi want to own a large stake in Telecom Italia?"

O'Shea has a "hold" rating on Vivendi.

Bollore owns 7 percent of Italian bank Mediobanca, the investment bank that has long been at the heart of Italy's high finance, and he used to sit on the board of insurer Generali.

Both Telecom Italia and Telefonica's bids would merge GVT, which serves high-end broadband and pay-TV customers in Brazil, into their respective local mobile businesses.

Telefonica owns Brazil's largest mobile operator Vivo, while Telecom Italia owns number two Tim.

Getting hold of GVT is crucial for both companies since their European home markets have been shrinking for the past few years amid fierce price competition. Brazil brings in one fifth of Telefonica's revenue and one third of Telecom Italia's sales.

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