Telefonica cannot block Vivo dividends says PT

Portugal Telecom has denied that Telefonica is able to block dividends from the two operators’ Brazilian joint venture Vivo as analysts warn that the Portugese incumbent cannot afford to lose its presence in the high growth Brazilian market.

Telefonica has recently threatened to block Vivo dividends as a way to force Portugal Telecom to sell its share in the joint venture, allowing the Spanish player to assume control and press on with plans for a merger with its Brazilian fixed player Telesp. But Reuters has reported that PT CEO Zeinal Bava told the news agency in a phone call that legal advice he had taken indicated that Telefonica would be unable to pursue this route.

Last week Telefonica increased its offer for PT’s 50 per cent of Vivo holding company Brasilcel to €6.5bn.

Telefonica had previously offered €5.7bn for the stake, an offer that was rejected, leading the Spanish incumbent to suggest that a hostile takeover bid for its Portugese counterpart – in which it already holds a ten per cent share – remained an option if a sale of the Brasilcel stake could not be agreed.

Brasilcel owns 60 per cent of mobile player Vivo, which leads the Brazilian mobile market and had 53.9 million subscribers at the end of the first quarter this year, according to data from Informa’s WCIS.

The Brazilian market is enjoying robust growth and Portugal Telecom is unlikely to want to sell out of its lucrative position in Vivo, said Julio Puschel, Informa’s senior analyst for Latin America, who is based in Sao Paolo. “Vivo has been very successful and is responsible for a very significant amount of Portugal Telecom’s revenue,” he said. “In fact it is the biggest source of revenue for the company.”

Maintaining a position in Brazil is essential to PT, said Puschel and, even if it were to sell it would be keen to look at other investments in the market. The more likely outcome, Puschel suggested, would be for Telefonica to exit Vivo and move to acquire TIM Brasil, owned by Telecom Italia, and achieve its convergent offering aims through this route.