Bidding war looms for Brazil telecom jewel GVT

French media giant Vivendi’s unexpected foray into Brazil’s telecommunications market could spark a bidding war for its takeover target, GVT, as rivals jostle for control of its broadband assets and license to operate nationwide.

On Wednesday, Vivendi offered 42 reais a share for GVT, a small but rapidly growing fixed-line operator that offers Internet services. The bid, which represents a premium of 16 percent to the previous day’s close, values GVT at about $2.9 billion.

Most industry analysts expect Vivendi’s bid to succeed, but a question mark lingers because of GVT’s poison-pill clause, which bars a change in control of the company unless a bidder offers at least a 25 percent premium to the stock’s highest price over the past year.

Investors seemed confident that a rival bid is looming. GVT shares rose on Wednesday to above the 42 reais offered by Vivendi, on speculation the French company would be forced to sweeten its offer. In afternoon trade on Thursday, they fell to 42 reais, down 1 real from their close the day before.

“Vivendi’s tender may have to be improved either because minority shareholders will shun it and ask for more money, or a new offer will come from a rival,” said Kelly Trentin, an analyst with Sao Paulo-based brokerage SLW Corretora.

The GVT deal will surely spark a new wave of consolidation in the $40 billion industry that slowed after the takeover of Brasil Telecom by bigger rival Oi, Trentin said.

Telefonica might be ready to trump Vivendi’s offer as the Spanish company’s Telesp fixed-line unit has only limited infrastructure beyond its home market of Sao Paulo, Link Corretora analyst Maria Tereza Azevedo said.

A banker who spoke under the condition of anonymity said GVT’s network capacity would be a perfect fit for Mexican giant Telmex’s local cable TV unit — whose broadband and data transmission services are seen as laggards in terms of quality.

Portugal Telecom, which shares control of Vivo Participacoes with Telefonica, might also seek to associate with GVT to pursue faster growth in the data and Internet segments, the banker said. Vivo is Brazil’s largest mobile phone carrier.

GVT’s focus on high-usage and high-margin customers has long been seen as attractive to bigger rivals eager to expand their geographic reach in the country.

Barclays Capital analyst Michael Morin said in a report that GVT’s “state-of-the-art telecom network” has a backbone of more than 15,000 kilometers (10,000 miles), allowing it to serve high-end residential and corporate clients.

GVT has quickly gained market share in the regions in which it operates by pricing services below the competition given the absence of outdated network costs, Morin said.

Rigoberto Valdez, a spokesman for Telmex in Mexico City, said the company had no comment on a possible bid for GVT.

Spokespeople for Telefonica and Portugal Telecom also declined to comment.

INCURSION

GVT’s controlling shareholders, Swarth Group and Global Village Telecom, agreed to tender as much as 20 percent of their shares to Vivendi and vote to remove the poison-pill clause.

Vivendi’s offer would only go ahead if it wins at least 51 percent of GVT. The deal is also subject to Vivendi board approval. GVT management will be retained if the tender goes through.

Management and controlling shareholders favor Vivendi as a partner for GVT because it would fund the company’s incursion in highly profitable segments such as Internet TV and expansion into Sao Paulo and Rio de Janeiro, Brazil’s largest cities, Chief Executive Amos Genish told Reuters on Wednesday. “GVT will be a better company with Vivendi than without Vivendi,” he said.

Since its listing in 2007 through September last year, GVT traded at a an average 60 percent premium to cable TV provider Net Servicos, Oi and Telefonica’s Telesp, Morgan Stanley analyst Vera Rossi said.

GVT, which has a 4 percent market share, is trading at 36 times its projected 2009 earnings, compared with 18 times for Net Servicos, Rossi said. Net Servicos company is controlled by Telmex, owned by Mexican billionaire Carlos Slim and Brazil’s Organizacoes Globo media conglomerate.

While the valuations are partly due to GVT’s annual growth in revenue that is six times the local industry’s average, it also reflects a notion that the company is more respectful of minority shareholders than rivals, said Link Corretora’s Azevedo.