Telefonica Faceoff in Brazil Portends GVT Bidding War: Real M&A
2014-08-26 22:21:20.259 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Rodrigo Orihuela and Daniele Lepido
Aug. 27 (Bloomberg) -- The chance to gain control of one of
Brazil’s fastest-growing Internet providers has former European
phone allies Telefonica SA and Telecom Italia SpA preparing for
a bidding war.
Madrid-based Telefonica’s lower debt burden relative to
profit, higher credit rating, and larger market value may give
it more financial flexibility than Telecom Italia as it looks to
purchase Vivendi SA’s Brazilian broadband unit GVT. Telefonica,
which this month offered 6.7 billion euros ($8.8 billion) for
GVT, is now considering an even higher bid before a potential
counterproposal from Milan-based Telecom Italia, according to a
person with knowledge of the matter.
“It will be Telecom Italia that will have to give up if
Telefonica is aggressive enough to increase the bid,” Erhan
Gurses, an analyst at Bloomberg Intelligence, said in a phone
interview. Telecom Italia “has a really high debt level so
obviously they want to have a stock-based offer to avoid raising
so much debt.”
Telecom Italia is preparing a counterbid valued at as much
as 7 billion euros to merge GVT with Tim Participacoes SA, its
Brazilian division, people with knowledge of the plan said last
week. Telecom Italia’s board is scheduled to discuss its GVT bid
today.
Telefonica and Telecom Italia, which joined forces seven
years ago and have since grown estranged amid a management
fallout, are vying for GVT to strengthen their positions in one
of their biggest markets amid flagging revenue at home.
Telefonica’s improved offer could potentially value GVT at as
much as 8 billion euros, representing a premium to the average
profit multiple paid in comparable deals in the past five years,
according to data compiled by Bloomberg Intelligence.
‘Valuable Player’
“GVT is a valuable player,” said Cyrus Mewawalla,
director of research at London-based CM Research. “It offers
broadband, cable television and telephone services,” helping an
acquirer gain scale in a number of related markets.
Telefonica may present a revised bid for GVT ahead of
Vivendi’s scheduled board meeting tomorrow, said the person with
knowledge of the matter, asking not to be identified because the
deliberations are confidential. No final decision has been made,
and Telefonica’s board could decide to stick with its current
offer, the person said.
Representatives for Telefonica, Telecom Italia and Paris-
based Vivendi declined to comment.
Telefonica has an indirect stake in Telecom Italia through
its holdings in Telco SpA. The investment vehicle was formed in
2007 to take a stake in Telecom Italia, thwarting a takeover bid
from AT&T Inc. and Carlos Slim’s America Movil SAB.
GVT Bid
Telefonica, which has spent billions since 2000 in Latin
America, approached GVT in 2009 and lost out to Vivendi. This
month, it offered the French company 6.7 billion euros, mostly
cash, in a proposal to combine Telefonica’s Brazilian unit with
GVT.
Vivendi said on Aug. 5, after Telefonica’s bid, that none
of its units are for sale, though its board would consider
Telefonica’s offer.
The Spanish carrier’s offer followed an attempt to split
Telecom Italia’s Tim between three operators to address
regulatory concerns stemming from its stake in the Italian
carrier. Brazil’s antitrust watchdog has ordered Telefonica to
resolve the conflict of interest, either by reducing its own
local holdings, including through a sale of its Telecom Italia
stake, or by persuading Telecom Italia to divest its own
operations there.
Stage Set
While Telefonica pressured Telecom Italia to consider the
latter option, Chief Executive Officer Marco Patuano prefers to
keep Tim and expand it by combining with GVT, people familiar
with the matter said in May. Now the stage is set for the two
companies to go head to head in the quest for control of GVT.
As part of its GVT bid, Telefonica offered Vivendi a right
to buy a stake of about 8 percent in Telecom Italia, which would
bring Telefonica’s holding in the company close to zero.
Telecom Italia and Vivendi also have an indirect link,
through Vivendi Chairman Vincent Bollore. The magnate also heads
France’s Bollore Group, a stakeholder in Mediobanca SpA, which
in turn is one of the four partners in Telecom Italia’s largest
investor group Telco.
Debt Load
Telecom Italia’s 3.56 ratio of net debt to earnings before
interest, taxes, depreciation and amortization is the highest
among Western European peers with a market value greater than
$10 billion. Telefonica by contrast has a leverage ratio of
about 2.6 and is assigned a credit rating of Baa2 by Moody’s
Investors Service, two levels above Telecom Italia at Ba1.
Given its debt level, Telecom Italia will be pushed to
finance an offer with its own stock, while Telefonica has cash
available to pay for the deal, according to Daniel Isidori, a
fund manager at Threadneedle Asset Management Ltd.
“I think that what will happen is that Telefonica will
look at Telecom Italia’s balance sheet and based on that decide
how much to offer,” Isidori said in a phone interview. Isidori
said the fund doesn’t currently hold Brazilian phone operators.
Acquiring GVT would offer Telefonica a larger stake in the
fixed-line broadband market in Brazil and strengthen its ability
to compete with America Movil and Oi SA in so called bundle
packages -- subscription packages that include fixed- and
mobile-phone, pay-TV and Internet.
Other Bidders
GVT also could attract interest from AT&T after the U.S.
carrier agreed to acquire DirecTV in May, Deutsche Bank AG
analysts said in a note in May. DirecTV has more than 5 million
pay-TV subscribers in Brazil.
Even as the Brazilian broadband market booms, competition
there is also intensifying, meaning an acquirer paying too much
will fail to earn a return for the investment. Seeking a deal in
Brazil through a bidding war is part of an aggressive strategy
that may not be in investors’ best interests, said Daniel
Lacalle, a senior portfolio manager at Ecofin Ltd.
“Sometimes companies become obsessed with being present in
a market just to position themselves and grab income,” Lacalle
said in a phone interview from London. “This can be risky.”
Still, a Telefonica acquisition would shield it from
renewed competition with Telecom Italia, which doesn’t have a
broadband presence in the sector currently even though it is the
second-largest mobile-phone operator in Brazil.
“Brazil offers growth perspectives, it’s an emerging
market,” said Gurses of Bloomberg Intelligence. “If the market
moves to convergence, whereby you sell products in bundles, then
this will be bad” for Telecom Italia.
For Related News and Information:
Telefonica Board Said to Discuss Improving GVT Offer This Week
NSN NAX2QI6S9729 <GO>
Telefonica Offers $9 Billion for Vivendi Brazilian Unit GVT
NSN N9UCSF6TTDSH <GO>
Telecom Italia Said to Prepare GVT Bid of Up to $9.4 Billion
NSN NAIUIL6S972D <GO>
Goldman, Credit Suisse Said to Work With GVT on Sale Process
NSN NAEUZY6K50XS <GO>
Brazil deal news: TNI BRAZIL MNA <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Manuel Baigorri in London and Brooke
Sutherland in New York.
To contact the reporters on this story:
Rodrigo Orihuela in Madrid at +34-91-700-9647 or
rorihuela@bloomberg.net;
Daniele Lepido in Milan at +39-02-8064-4266 or
dlepido1@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Beth Williams
2014-08-26 22:21:20.259 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Rodrigo Orihuela and Daniele Lepido
Aug. 27 (Bloomberg) -- The chance to gain control of one of
Brazil’s fastest-growing Internet providers has former European
phone allies Telefonica SA and Telecom Italia SpA preparing for
a bidding war.
Madrid-based Telefonica’s lower debt burden relative to
profit, higher credit rating, and larger market value may give
it more financial flexibility than Telecom Italia as it looks to
purchase Vivendi SA’s Brazilian broadband unit GVT. Telefonica,
which this month offered 6.7 billion euros ($8.8 billion) for
GVT, is now considering an even higher bid before a potential
counterproposal from Milan-based Telecom Italia, according to a
person with knowledge of the matter.
“It will be Telecom Italia that will have to give up if
Telefonica is aggressive enough to increase the bid,” Erhan
Gurses, an analyst at Bloomberg Intelligence, said in a phone
interview. Telecom Italia “has a really high debt level so
obviously they want to have a stock-based offer to avoid raising
so much debt.”
Telecom Italia is preparing a counterbid valued at as much
as 7 billion euros to merge GVT with Tim Participacoes SA, its
Brazilian division, people with knowledge of the plan said last
week. Telecom Italia’s board is scheduled to discuss its GVT bid
today.
Telefonica and Telecom Italia, which joined forces seven
years ago and have since grown estranged amid a management
fallout, are vying for GVT to strengthen their positions in one
of their biggest markets amid flagging revenue at home.
Telefonica’s improved offer could potentially value GVT at as
much as 8 billion euros, representing a premium to the average
profit multiple paid in comparable deals in the past five years,
according to data compiled by Bloomberg Intelligence.
‘Valuable Player’
“GVT is a valuable player,” said Cyrus Mewawalla,
director of research at London-based CM Research. “It offers
broadband, cable television and telephone services,” helping an
acquirer gain scale in a number of related markets.
Telefonica may present a revised bid for GVT ahead of
Vivendi’s scheduled board meeting tomorrow, said the person with
knowledge of the matter, asking not to be identified because the
deliberations are confidential. No final decision has been made,
and Telefonica’s board could decide to stick with its current
offer, the person said.
Representatives for Telefonica, Telecom Italia and Paris-
based Vivendi declined to comment.
Telefonica has an indirect stake in Telecom Italia through
its holdings in Telco SpA. The investment vehicle was formed in
2007 to take a stake in Telecom Italia, thwarting a takeover bid
from AT&T Inc. and Carlos Slim’s America Movil SAB.
GVT Bid
Telefonica, which has spent billions since 2000 in Latin
America, approached GVT in 2009 and lost out to Vivendi. This
month, it offered the French company 6.7 billion euros, mostly
cash, in a proposal to combine Telefonica’s Brazilian unit with
GVT.
Vivendi said on Aug. 5, after Telefonica’s bid, that none
of its units are for sale, though its board would consider
Telefonica’s offer.
The Spanish carrier’s offer followed an attempt to split
Telecom Italia’s Tim between three operators to address
regulatory concerns stemming from its stake in the Italian
carrier. Brazil’s antitrust watchdog has ordered Telefonica to
resolve the conflict of interest, either by reducing its own
local holdings, including through a sale of its Telecom Italia
stake, or by persuading Telecom Italia to divest its own
operations there.
Stage Set
While Telefonica pressured Telecom Italia to consider the
latter option, Chief Executive Officer Marco Patuano prefers to
keep Tim and expand it by combining with GVT, people familiar
with the matter said in May. Now the stage is set for the two
companies to go head to head in the quest for control of GVT.
As part of its GVT bid, Telefonica offered Vivendi a right
to buy a stake of about 8 percent in Telecom Italia, which would
bring Telefonica’s holding in the company close to zero.
Telecom Italia and Vivendi also have an indirect link,
through Vivendi Chairman Vincent Bollore. The magnate also heads
France’s Bollore Group, a stakeholder in Mediobanca SpA, which
in turn is one of the four partners in Telecom Italia’s largest
investor group Telco.
Debt Load
Telecom Italia’s 3.56 ratio of net debt to earnings before
interest, taxes, depreciation and amortization is the highest
among Western European peers with a market value greater than
$10 billion. Telefonica by contrast has a leverage ratio of
about 2.6 and is assigned a credit rating of Baa2 by Moody’s
Investors Service, two levels above Telecom Italia at Ba1.
Given its debt level, Telecom Italia will be pushed to
finance an offer with its own stock, while Telefonica has cash
available to pay for the deal, according to Daniel Isidori, a
fund manager at Threadneedle Asset Management Ltd.
“I think that what will happen is that Telefonica will
look at Telecom Italia’s balance sheet and based on that decide
how much to offer,” Isidori said in a phone interview. Isidori
said the fund doesn’t currently hold Brazilian phone operators.
Acquiring GVT would offer Telefonica a larger stake in the
fixed-line broadband market in Brazil and strengthen its ability
to compete with America Movil and Oi SA in so called bundle
packages -- subscription packages that include fixed- and
mobile-phone, pay-TV and Internet.
Other Bidders
GVT also could attract interest from AT&T after the U.S.
carrier agreed to acquire DirecTV in May, Deutsche Bank AG
analysts said in a note in May. DirecTV has more than 5 million
pay-TV subscribers in Brazil.
Even as the Brazilian broadband market booms, competition
there is also intensifying, meaning an acquirer paying too much
will fail to earn a return for the investment. Seeking a deal in
Brazil through a bidding war is part of an aggressive strategy
that may not be in investors’ best interests, said Daniel
Lacalle, a senior portfolio manager at Ecofin Ltd.
“Sometimes companies become obsessed with being present in
a market just to position themselves and grab income,” Lacalle
said in a phone interview from London. “This can be risky.”
Still, a Telefonica acquisition would shield it from
renewed competition with Telecom Italia, which doesn’t have a
broadband presence in the sector currently even though it is the
second-largest mobile-phone operator in Brazil.
“Brazil offers growth perspectives, it’s an emerging
market,” said Gurses of Bloomberg Intelligence. “If the market
moves to convergence, whereby you sell products in bundles, then
this will be bad” for Telecom Italia.
For Related News and Information:
Telefonica Board Said to Discuss Improving GVT Offer This Week
NSN NAX2QI6S9729 <GO>
Telefonica Offers $9 Billion for Vivendi Brazilian Unit GVT
NSN N9UCSF6TTDSH <GO>
Telecom Italia Said to Prepare GVT Bid of Up to $9.4 Billion
NSN NAIUIL6S972D <GO>
Goldman, Credit Suisse Said to Work With GVT on Sale Process
NSN NAEUZY6K50XS <GO>
Brazil deal news: TNI BRAZIL MNA <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Manuel Baigorri in London and Brooke
Sutherland in New York.
To contact the reporters on this story:
Rodrigo Orihuela in Madrid at +34-91-700-9647 or
rorihuela@bloomberg.net;
Daniele Lepido in Milan at +39-02-8064-4266 or
dlepido1@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Beth Williams