Telefonica to Pay $9.3B For Vivendi's Brazilian Telecom GVT

PARIS (The Deal) -- France's Vivendi has agreed to sell Brazilian telecommunications unit GVT to Telefonica for about 7.24 billion euros ($9.3 billion) in cash and stock, striking a final deal in a two-year disposal program that has taken in more than $40 billion and transformed the former telecommunications giant into a media company.

Spain's Telefonica will pay 4.66 million euros in cash, hand Vivendi a 7.4% stake, worth about 2.02 billion euros, in its Telefonica Brasil unit and a further 5.7% stake, worth about 1.01 billion euros, in Telecom Italia SpA. Vivendi will use about 450 million euros of the cash to repay 450 million euros in debt linked to GVT.

"I had valued GVT at about 5.3 billion euros, so it is a really good price for Vivendi," said a Paris-based analyst who asked not to be named. "The question now is what are they going to do with this Telecom Italia stake? It isn't clear what Vivendi can do to maximize the value of its significant holding in a troubled company."

Madrid-based Telefonica and Vivendi, of Paris, entered exclusive talks over GVT in late August, following a brief bid battle for the Brazilian unit between the Spanish group and Telecom Italia, in which Telefonica is the biggest shareholder.

Coupling Telefonica  Brasil, Brazil's No. 1 telecoms provider with 29% of the market, with GVT, which ranks No. 4 with 12%, creates a clear leader in the fast-growing Brazilian telecommunications market. It also provides Telefonica with a readymade network in Brazil's southern regions, in which it lacks penetration.

"The operation will generate synergies of at least 4.7 billion euros," Telefonica said. "The transaction allows Telefonica to enhance its positioning in one of its key markets and improve its growth profile and financial flexibility."

The deal also provides a route to offload Telefonica's unwanted 5.7% stake in Telecom Italia. The Spanish phone company is under orders from Brazilian regulators to either exit Telecom Italia or sell its Brazilian operations, which compete with Telecom Italia's Brazilian unit TIM Participacoes SA. TIM is Brazil's No. 2 telecoms group, with about 27% of the market.

The deal values the GVT at about 11 times forecast Ebitda for the current year. GVT posted Ebitda of 329 million euros for the six months ending June 30, up 10.5% on the corresponding period in 2013. GVT's Ebitda margin for the first half of the year was 39.2%, a figure that makes it Brazil's most profitable telecom operator, according to Vivendi.

For the French company, the sale marks the end of a two-year transformation from a deeply indebted, telecoms-dominated conglomerate into a cash-rich media company.

The company has sold or agreed to sell more than $40 billion of assets since 2012, including GVT, North African Telecom unit Maroc Telecom SA, French cell phone service provider Societe Francaise de Radiotelephone, or SFR, and a stake in gamemaker Activision Blizzard (ATVI) .

Vivendi will make a capital gain of about $3.9 billion on the sale of GVT, which it bought in 2009 and 2010 for about $4 billion. Vivendi paid about 8.5 times Ebitda to acquire a majority stake in GVT following an auction that pitted it against Telefonica.

Vivendi said the sale of GVT to Telefonica will land it with an about 500 million euros tax bill, including capital gains tax from the sale. Vivendi will have net cash of more than 7 billion euros once it has completed the sale of both SFR and GVT.

Telefonica's offer for GVT is subject to regulatory approval from both Brazil's telecom's watchdog Agencia Nacional de Telecomunicacoes, known as Anatel, and competition authority Conselho Administrativo de Defesa Economica, or Cade.

The smooth passage of the Spanish group's acquisition is not guaranteed. Telefonica's 2009 bid for GVT stumbled partly because Anatel ordered that it maintain GVT as a separate operation for five years.

Telefonica plans to fund the cash portion of its acquisition of GVT through a rights issue of Telefonica Brasil. The Madrid-based parent will subscribe to that sale in proportion to its current stake of 74% in its Brazilian subsidiary and will fund that purchase, in turn, via a capital increase in its own stock.

The closing of the transaction is due to take place before the end of the first half of 2015.

Shares in Vivendi trade Friday at 19.59 euros, up 0.12 euros, or less than 1%, on their Thursday close. Telefonica shares traded at 12.35 euros, up 0.20 euros or 1.6%.

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