Spain's Telefonica SA on Tuesday launched a 5.7 billion euros ($7.4 billion) bid to take over Vivo, Brazil's leading mobile phone operator, though the offer was immediately rejected.
Telefonica and Portugal Telecom each own 50 percent of Brasilcel, a holding company which in turn owns 60 percent of Vivo. The bid is for the half of Brasilcel that Telefonica does not already own — though Portugal Telecom said that its board has unanimously rejected the offer.
Telefonica said it would also consider launching a tender for the ordinary shares of Vivo not owned by Brasilcel if it succeeded in its bid.
Portugal Telecom said Vivo was core to its strategy and the sale of its stake would be against its long term growth prospects. It described the Telefonica offer as "unsolicited, binding and unconditional."
Portugal Telecom's chief executive, Zeinal Bava, said that "taking our investments out of Brazil, by selling off Vivo, would amputate PT's future because possessing scale and growth are critical factors for success in the telecoms sector."
The offer will expire June 6.
Analyst Jonathan Dann of Barclays Capital said "taking full control of Vivo is a sensible and logical decision for Telefonica."
But he added that the Portuguese rejection may not be final.
"For PT, the premium being offered is substantial and we estimate that PT could in theory sell Vivo and use the proceeds to buy back 40 percent of its own equity," he said in a financial note.
"For Telefonica, the offer is likely to be seen as a substantial premium for control and we would expect the shares to be weak, especially as the market assesses the risk of a raised bid," he added.
Latin America is one of Telefonica's main growth areas.
Barclays Capital said the total offer from Telefonica was 6.3 billion euros given that the company was offering minority Vivo shareholders, who hold 11.1 percent of Vivo shares, the same premium, thus costing a further 600 million euros ($762 million).
Shares for Telefonica in early afternoon trading in Madrid were down 5.9 percent at 15.57 euros ($19.77) in a weaker wider market. Portugal Telecom's shares were up 0.48 percent at 7.73 euros ($9.82).
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