Value Line is regarded as the best independent research available. More than just recommendations, Value Line provides the rationale behind its picks for greater understanding.
- Don D., California
Telefonica Finally Strikes Deal To Buy Brazil’s Vivo
After raising its bid for the third time, global telecom giant Telefonica (TEF) successfully struck a deal with Portugal Telecom (PT) to purchase the portion of Brazil-based mobile provider Vivo (VIV) that Telefonica did not already own. This transaction values Vivo at about $9.8 billion and should boost Telefonica's annual revenues by approximately $14 billion.
The path toward the successful agreement was hard fought by Telefonica. After the first bid was rejected flat out, the telco boosted its offer substantially. However, the second offer, which did garner shareholder approval, was rejected by the Portuguese government, which enacted its ``golden share'' privilege to vote down the deal. Telefonica promised to take the issue to court, and it was subsequently ruled by the European Court of Justice that the use of the "golden share'' by Portugal was illegal. Further pursuing a legal battle would have been costly and timely to both sides, and the current deal should provide advantages for both Telefonica and Portugal Telecom.
The venture would be an important part of Telefonica's growth strategy, as subscriber levels have flatlined and revenues have stagnated in its home country of Spain. Total accesses and mobile usage, including minutes of use, messaging, and Web surfing, are still climbing in Latin America, and thus, the region is prime for mergers and consolidation activity. Further expansion internationally will likely continue to be a driver of top-line growth at Telefonica.
About The Company: Telefonica, S.A., provides a range of telecommunications services, including telephone, mobile, Internet, data, and entertainment, primarily in Spain, Portugal, a number of Latin American countries. It is currently in the process of expanding its services throughout the rest of Europe. For the year ended December 31, 2009, net sales and rendering of services in Spain accounted for 35% of Telefonica’s consolidated sales; Latin America comprised 41%; the rest of Europe accounted for 24%.