Portugal Telecom Investor Vasconcellos Says Brazil Is a ‘Must’

Portugal Telecom SGPS SA’s biggest individual investor said Brazil is “a must” for future growth and that the phone company should try to buy Telefonica SA’s stake in Vivo Participacoes SA.

“We’ll never do anything to put growth in Brazil at risk,” Nuno Vasconcellos, who controls about 7 percent of Portugal Telecom, said in an interview in Milan. He said his stake is the largest of any individual investor in the company. “Brazil is not only strategic, it’s part of us, like an arm or a leg,” Vasconcellos said.

Lisbon-based Portugal Telecom and Spain’s Telefonica share control of Vivo, Brazil’s largest mobile-phone company. Portugal Telecom has used Brazil to spur revenue as growth in Europe has slowed and competition has increased in its home market. Portugal Telecom said yesterday that fourth-quarter net income more than doubled to 312 million euros ($424 million) on higher revenue from Brazil. Sales rose 17 percent at Vivo.

Asked whether Portugal Telecom would consider offers for Vivo, Vasconcellos said selling the Vivo stake now “even at a great price, would mean throwing away the future of the company.” Vasconcellos owns his stake in Portugal Telecom through Ongoing Strategy Investments SA, a closely held investment company that also controls Portuguese daily Diario Economico. Banco Espirito Santo SA and Telefonica are Portugal Telecom’s largest shareholders.

Brazilian Assets
Pressure on Telefonica to unravel its Brazilian assets has increased after Vivendi SA beat out the Spanish company in a takeover battle for phone company GVT (Holding) SA, according to analysts including HSBC Holdings Plc’s Luigi Minerva. Telefonica isn’t “exploiting its full potential and synergies” because its assets in Brazil are managed separately, Minerva wrote in a note last month.

Telefonica generated 40 percent of its revenue in the first nine months of 2009 from Latin America, the only region where the company posted growth for the period.

“After Vivendi’s entry, things have changed in the Brazilian market,” Vasconcellos said. “If Telefonica doesn’t act fast, the market may consolidate in a different direction.”

Asked if Portugal Telecom could be a takeover target, Vasconcellos said “a hostile takeover from anyone on my side is not welcome.” Vasconcellos also didn’t rule out raising his stake in Portugal Telecom, saying “any shareholder happy with a company may consider” further building a stake.

Vasconcellos said he was in Milan for meetings including one with Marco Fossati, whose family is Telecom Italia SpA’s second-largest shareholder. Fossati said last month that a merger with Telefonica may shore up the Spanish company’s sales in Brazil and “solve its problems” there.

Telecom Italia owns Tim Participacoes SA, which ranks third in Latin America, where Telefonica also owns fixed-line operator Telecomunicacoes de Sao Paulo SA. Telefonica is the largest shareholder in Telco SpA, which controls Telecom Italia with a 22.4 percent stake.