Perplexing call

11 May 2010 By Una Galani Follow @ugalani

The Portuguese group has surprisingly rejected its Spanish rival’s 5.7 billion euro offer to buy out their Brazilian mobile JV. Sure, Telefonica needs to shore up its business in Brazil, but the valuation is punchy. PT shareholders should encourage the board to think again.

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Portugal Telecom on May 10 rejected a 5.7 billion euro ($7.65 billion) bid from Spain's Telefonica to buy out its partner in its Brazilian mobile joint venture Vivo .

Telefonica made an unconditional binding offer for Portugal Telecom's 50 percent stake in Brasilcel a Netherlandsbased holding company that in turn controls roughly 60 percent of Vivo. The remaining shares are listed in Sao Paolo, Brazil. The offer represents a premium of 114 percent to Vivo's closing price on May 10.

Under the terms of the bid, Telefonica will also launch a tender offer for the 11.1 percent of ordinary voting shares of Vivo which are not currently owned by Brasilcel. The offer would be priced at 80 percent of the value of the offer made to Portugal Telecom and would amount to 600 million euros.

Telefonica owns 10 percent of Portugal Telecom's ordinary shares and is its largest shareholder. Portugal's Banco Espirito Santa owns 17 percent of the shares, according to Reuters company data.

Vivo is Brazil's largest mobile operator.

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