teleco.com.br

10/13/2009

Why does Telefonica want to purchase GVT?

Telefonica launched on 10/07/2009 a public offer in order to acquire at least 51% of GVT's shares in auction, which will be held on 11/19/2009.

This is a hostile bid, not negotiated with GVT's controllers that had agreed to sell the company to Vivendi for R$ 42.00 per share (more details). The price offered by Telefonica is R$ 48.00 per share, what would represent an investment of R$ 6.5 billions.

Telefonica can make an offer because GVT has only ordinary stocks (with right to vote) and 65% of its shares aren't owned by the controllers.

The following presents a summary of the main reasons for Telefonica to launch public offer in order to acquire GVT:

With GVT, Telefonica would become stronger outside the State of São Paulo, in opposition to Oi. GVT's operations, mirror company for fixed telephony in region II with operations in some of the main metropolitan areas of region I (Rio de Janeiro, Belo Horizonte and Salvador), are located mostly outside region II where Telefonica operates. For this reason, Telefonica was always considered the natural candidate to acquire GVT.
With this movement, Telefonica makes it difficult the entry of a competitor (Vivendi) in the Brazilian market. Vivendi wanted to use GVT as a highlight to a wider role in the country (more details).
GVT has a modern broadband network, which permits integrated services offer. The company has also a fiber long distance network of more than 11,00 km, resulted from the acquisition of Geodex in 2007.

If Vivendi do not cover Telefonica's proposal, which seems unlikely, Telefonica Group will take an important step to expand its operation area in Brazil consolidating its leadership in gross revenue among the groups operating in the country.

If, by purchasing GVT, Telefonica equates its strategy in areas of fixed telephony and broadband, it would still be necessary to define how its performance in mobile area will be integrated in these operations. The sharing control of Vivo with Portugal Telecom needs to be equated to allow this integration.

The purchase of GVT can, still, attract the attention of other investors, like in Embratel's case (Telmex) that would have the benefit of increasing its penetration in broadband and Fixed Telephony. As Carlos Slim's group is well positioned financially, its interest by GVT wouldn't be a surprise.