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Telefonica to Raise GVT Offer to Counter Telecom Italia

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Spanish telecom giant Telefonica (TEF - Free Report) has raised its earlier offer for Brazilian broadband provider GVT to thwart a better counter-offer from Telecom Italia (TI - Free Report) . The attempt expresses Telefonica’s commitment toward strengthening its investments in Brazil.

Earlier this month, Telefonica offered GVT €6.7 billion ($8.83 billion) in a cash-and-stock deal, seeking to merge it with its Brazilian unit Vivo. As part of the deal, Telefonica had also offered its 8.3% stake in Telecom Italia to Vivendi.

However, Telecom Italia has come up with its own offer for GVT, which is around €7 billion ($9.22 billion). Further, as part of the offer, the Italian operator would transfer 20% stake in itself to GVT’s parent company, Vivendi.

Telefonica’s latest offer betters the previous one, valuing GVT at €7.45 billion ($9.82 billion). The transaction includes €4.66 billion ($6.14 billion) in cash along with a 12% share in the new merged company.   

On its part, Vivendi has confirmed receipt of both offers and has stated that it will consider the options. Notably, Vivendi had made a failed attempt to sell GVT last year to U.S. satellite Pay-TV provider DIRECTV .

Both Telefonica and Telecom Italia’s hankering for GVT does not come as a surprise. The potential acquisition of GVT provides a win-win situation for the two companies as both are keen on merging GVT with their own units to consolidate their position in Brazil.

Meanwhile, the deal is expected to face strict regulatory scrutiny, particularly if Telefonica merges with GVT. A potential merger between the two will provide a substantial lead to Telefonica. Till mid-2014, the Brazilian telecom market remains dominated by Vivo, TIM Brazil and America Movil S.A.B. de C.V. (AMX - Free Report) -owned Claro, with Oi coming in at a distant fourth position.   

Of late, the Spanish telecom behemoth has been suffering in most of Europe as well as in the Brazilian market. Telefonica has engaged itself in a market share battle in Latin America’s largest economy and has been spending big bucks on promotion and subsidies to create an edge for itself. This has considerably affected its margins.

It is worth noting in this regard that Telefonica had failed in its attempt earlier this year to gain hold of TIM Brazil. We believe acquiring GVT will allow the carrier to improve its performance in Brazil, particularly in the broadband and cable television space.

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