Phone
Telefonica, Europes second-biggest phone company, offered 6.5 billion reais ($3.72 billion) yesterday for Curitiba-based GVT, created in 1999 by Chief Executive Officer Amos Genish and Chairman Shaul Shani. The bid of 48 reais a share topped last months 42-reais offer from Vivendi SA.
GVT, controlled by Global Village Telecom (Holland) BV and Swarth Group, emerged during Brazils privatization of the industry. Shani and Genish have helped the carrier outpace its older rivals by focusing on customers and businesses willing to pay for faster Internet speeds. Its 15,000-kilometer (9,300- mile) fiber-optic network would allow Telefonica to stop relying on third parties to carry traffic over long distances.
“Its not a bargain, but we are talking about one of the few wire-line broadband providers that is growing nowadays,” said Alexandre Garcia, an analyst at Raymond James Financial Inc. in Sao Paulo. “There is definitely a lot of growth potential.”
GVT is the fourth-largest high-speed Internet provider in Brazil, with about 5 percent of the market. Telefonicas unit is in second place, with 25 percent. The Madrid-based company is only permitted to operate in Sao Paulo state, while GVT is the largest carrier with permission to offer service throughout the country.
Vivendi, the Paris-based media company, had sought to seize GVT to expand its holdings in developing countries. Vivendi spokeswoman Solange Maulini declined yesterday to comment on the Telefonica bid and on whether the French company plans to make a counteroffer.
GVTs Share
Telefonica is seeking the agreement of at least 51 percent of shareholders and approval from regulators by Nov. 19, executives said yesterday on a conference call. A spokeswoman for GVT said the companys board is evaluating Telefonicas offer, and that the company has no further comment.
Shani and Genish started GVT after developing phone services in rural areas of Chile, Peru and Colombia. GVT paid 100,000 reais for the rights to operate in Brazils south, north and center-west areas. The company later acquired rights to offer phone and data services throughout the country, and now operates in 86 cities.
Sales Surging
GVTs revenue has grown more than 14-fold since its first year of operation in 2000 as Brazilians jumped online. The number of high-speed Internet connections there will triple to 22.1 million by 2014 from 7.1 million in 2008, according to Pyramid Research in Cambridge, Massachusetts.
“This is the easiest way for Telefonica to grow outside Sao Paulo and also protect its market,” said Luciana Leocadio, the head of research at Ativa Corretora in Rio de Janeiro, in a telephone interview. “The offer is expensive, Telefonica is paying a large premium on top of Vivendis, but its justifiable from a strategic point of view.”
Another competitor, Rio-based Tim Participacoes SA, gained the most in four months yesterday after Correio Braziliense reported that the Brazilian unit of Italys biggest phone company was cutting costs to prepare for a sale. Telecom Italia SpA of Milan denied the report, writing in a statement e-mailed yesterday that “speculation concerning a possible sale of Tim Participacoes SA is completely groundless.”
Dividend Adjustment?
Telefonicas Brazilian unit, called Telecomunicacoes de Sao Paulo or Telesp for short, may have to adjust its dividend to pay for GVT, executives said yesterday on a conference call. Even so, the growth potential from acquiring GVT should benefit the stock, said Garcia at Raymond James, who rates Telesp and GVT shares “hold.”
Last year, Telesp paid dividends of 4.02 reais on preferred shares and 3.65 reais on common shares.
GVTs shareholders will also have to agree to waive so- called poison pills that protect minority shareholders from takeovers. The companys corporate-governance rules state that an offer must be at least 25 percent above the highest price in the previous 12 months, or be based on a valuation carried out by an independent agency.
Under those bylaws, Telefonica would have to increase its offer by at least 12 percent to 53.75 reais a share. Telesp executives said they expect GVT to waive the poison pill.
Growth Trade-Off