Telefonica Reveals Plans To Exit Telecom Italia Stake After GVT Deal

(RTTNews) - Spanish telecom operator Telefonica S.A. revealed Monday that it plans to exit its 14.8 percent stake in Italian phone carrier Telecom Italia SpA (TI, TIAOF) after it strikes the deal to acquire the Paris-based Vivendi S.A.'s (VIV.L, VIVEF) Brazilian broadband unit Global Village Telecom, S.A. (GVT). Telefonica owns the stake in Telecom Italia through holding company Telco.

The move to exit stake in Telecom Italia could also be a way of appeasing Brazilian regulatory authorities. The Brazilian antitrust agency, CADE had told Telefonica earlier that it has a year and half to divest its interest in Telecom Italia or look for a new partner for Telefonica's commercial brand in Brazil, Vivo.

A combination of Telefonica's Vivo and GVT is billed to create the largest telecom operator in Brazil's phone market. GVT has an 11.4 percent share of Brazil's broadband market, compared to Telefónica's 19.4 percent share.

Following the intense war between the two telecoms firms to acquire GVT, Telefonica's Chairman Cesar Alierta announced during a telecoms conference held in Santander, Spain that, "After the GVT operation the message is clear, we don't want to stay in Telecom Italia."

After Madrid-based Telefonica's initial 6.7 billion euro bid on August 5, it sweetened the offer to 7.45 million euros or $9.80 billion on August 28 immediately after Telecom Italia floated a rival bid of 7.0 million euros. Telefonica's new offer includes a cash consideration of 4.66 million euros and newly issued shares representing 12 percent of the share capital in the enlarged Telefónica Brasil, S.A.

Vivendi then decided to enter into three-month exclusive talks until November 28 with Telefónica after its board reviewed both the offers it received on Thursday. Telefónica expects to sign a deal in November and close the acquisition in mid-2015.

The new offer from Telefonica could also see Vivendi becoming a shareholder in Telecom Italia by exchanging its Brazilian shares for Italian ones. Vivendi could exchange 4.5 percent in shares in the enlarged Telefonica Brasil operation for an 8.3 percent voting interest in Telecom Italia.

Internet-access provider GVT is a successful and fast growing alternative operator in Brazil. The two telecom giants are vying for GVT in a bid to add broadband offering in Latin America's largest market as phone-service revenue drops in Spain and Italy amid intense competition.

The deal to buy GVT would boost Telefonica's position in Brazil, where it was already the leading provider of cellphone services, but had only a smaller chunk of the broadband and fixed-line market.

Meanwhile, Telecom Italia would be left in a much weaker position in Brazil. It will now look to exit Brazil by selling its Brazilian unit Tim Participacoes SA (TSU) or seeking a partnership with Oi SA.

The two companies are already one of the biggest rivals in the Brazilian phone market, with Tim Participacoes competing currently with Telefonica's commercial brand in Brazil, Vivo. Telecom Italia was looking to combine Tim Participacoes with GVT if the bid was successful.

GVT is reportedly working with financial advisers Goldman Sachs Group Inc. and Credit Suisse Group AG on its potential sale.

Meanwhile, Vivendi is in the process of slimming down since 2012 by divesting most of its telecom assets to focus on its media assets. It agreed in May to sell its telecom unit SFR to cable holding company Altice/Numericable in a deal valued at 17 billion euros. In the same month, Vivendi sold its 53 percent interest in African phone operator Maroc Telecom group to Etisalat.