Telefonica
WHAT a terrible mess. There is little worth rescuing from the ashes of Telefonica’s failed attempt to buy Portugal Telecom (PT) out of their Brazilian joint venture, after the Portuguese government exercised its “golden share” option to scupper the bid. For both sets of shareholders, the deal would have made perfect sense.
Telefonica could have realised its long-term ambition of merging Vivo, the Brazilian network operator it controlls with PT, with Telesp, its fixed-line operator. That would have allowed the Spanish incumbent to offer triple-play deals to consumers and enterprise while reaping a staggering €4bn in cost synergies. Such a firm would have the scale to increase Vivo’s 30 per cent share of Brazil’s fast-growing mobile market, which currently counts 184.45m subscribers.
PT shareholders would have been richly rewarded for selling up. Telefonica’s twice-sweetened €7.2bn offer for PT’s 50 per cent stake in Brasilcel, the vehicle that controls Vivo, was worth 35 times Vivo’s earnings. Most of PT’s investors wanted to bite their Spanish partner’s hand off.
Alas, the Portuguese government’s objections had nothing to do with business. This was an old-fashioned colonial spat about south Europe’s influence in Latin America. Portugal wants a commercial foothold in the region, and has trampled over private shareholders to ensure it maintains one.
That leaves Telefonica and PT as two miserable partners in a loveless marriage. As is always the case, it is the business that will suffer most.