French telecom and media company Vivendi SA Wednesday unveiled a €2 billion ($2.9 billion) bid for Brazilian fixed-line telecom operator GVT Holding SA, as part of a wider strategy to offset slowing growth in Europe by investing in emerging markets.
Vivendi, which owns French telecom operator SFR, has been expanding its telecom business around the world over the past few years as its fixed-line business in Europe has suffered by consumers’ increased use of mobile phones.
“It is not in our DNA to buy slow-growing assets in slow-growing markets,” Vivendi Chief Executive Jean-Bernard Levy said in an interview.
Brazil is the largest telecommunications market in Latin America by revenue — and Spain’s Telefónica SA is a key player there in wireless and fixed-line businesses. GVT started in 2000 and operates in 72 cities in midwestern and southern Brazil, and some northern states. Vivendi says GVT has 2.3 million customers and had sales of $800 million last year; a UBS research note said GVT has 4% of Brazil’s market.
As regulators open the Brazilian fixed-line telephone market to competition, Vivendi says GVT can win market share from current operators. Mr. Levy says GVT now has access to all of Brazil, whereas before it had access to only a third of the country. He said GVT’s revenue had grown 30% for two successive years.
Some analysts, however, questioned the long-term benefits of investing in Brazil’s fixed-line business just as Brazilians are turning to mobile telephony.
“We are not getting into the mobile business. We are going to focus on GVT’s strategy, which is to focus on the fixed-line services,” Mr. Levy said in the interview.
The Paris-based company — which owns record company Universal Music and videogame maker Activision Blizzard — is also hoping to profit from GVT’s growing presence in the Brazilian broadband Internet market. Internet penetration is still low at about 5%, compared with France’s 30%, according to French brokerage firm CM-CIC.
The deal requires the approval of GVT’s board and shareholders. Vivendi, whose board also has to approve the deal, said the offer would only go ahead if it obtained at least 51% of GVT’s capital and if it completes due diligence by Oct. 16.
“GVT looks like an attractive operator with strong growth potential, but the price Vivendi is ready to pay seems quite high,” Exane BNP analyst Charles Bedouelle said in a research note. Vivendi’s cash offer of 42 Brazilian reals ($22.98) per share represents a 15.83% premium to GVT’s latest closing share price.