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NewsGlobe: Financial
France's Vivendi secures Brazil's GVT
French bid trumps Telefónica's bid
by Tony Danby, Latin America Correspondent
French telecom and media group Vivendi S.A. have trumped Spanish telecom giant Telefónica to gain control of Brazilian fixed line and broadband provider GVT (Holding) SA. Vivendi surprised telecoms analysts by securing control of GVT from the clutches of Telefónica, a major powerhouse in Latin America. Vivendi secured control of GVT, with a bid of 56 Brazilian real (US$32.7) per share. The deal values the company at US$4.2 billion.
Eduardo Tude, president of telecoms consultancy Teleco commented, "This was a surprise as most people expected Telefónica to win, but in the end Vivendi made a very good offer." He continued to say, “The price is expensive for the asset, but they are paying a premium with a view to entering the Brazilian market. They really want to be here."
Vivendi, which owns the world's largest music publisher Universal Music Group, secured 37.9 percent of GVT shares and gained an irrevocable option to secure a further 19.6 percent of GVT. The price tag of BRL56 per share 33 percent above its original offer of BRL42 per share, and almost 11 percent above the Telefónica's recent bid of BRL50.50.
Vivendi has been eyeing expansion opportunities in emerging markets such as Africa to help offset flagging fixed line sales in Europe. With the deal, GVT secures Vivendi’s experience in content delivery as well as gain financial muscle to continue its expansion plans while Vivendi moves towards a presence in Brazil and potentially in Latin America.
In Tude's opinion, Vivendi will need to continue investing to expand GVT’s fixed and broadband activities in São Paulo state and to enter new cities such as Fortaleza in the northeast. He also expects GVT to bid for a 3G license next year.
The apparent sweeping victory for Vivendi will be a bitter blow to Telefónica. The Spanish operator was viewed as having the most to gain from synergies with GVT and a strong desire to keep a new rival out of the market. Telefónica can only acquire GVT now from Vivendi.
Julio Puschel, telecoms analyst at US consultancy Yankee Group, says that Vivendi played a smart game. “During weeks of silence, Vivendi made offers to key GVT shareholders, while Telefónica never introduced a killer bid,” he said.
Puschel is positive about the deal. He believes that Vivendi and GVT will help to stimulate more competition to the market. “They will create a group of four main national broadband players of Oi; NET Serviços de Comunicação part of Mexico's Telmex group; Telefónica, as well as GVT and Vivendi,” he said.
Puschel believes that Telefónica will still try to expand outside of São Paulo, but it will face hefty costs to develop a network from scratch.
However, analyst Vera Rossi at U.S. investment bank Morgan Stanely sees Vivendi's entry into Brazil as negative for the industry. In a research note Rossi comments, “Telefónica's strategy was well articulated and more focused on profitability, instead of on aggressive market share gains.”
Rossi adds that the outcome is also negative for GVT's rivals, which are likely to face tougher competition. "We expect Vivendi to be very aggressive as it tries to grow the business, especially after the price paid for GVT," Rossi said.
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