Telefonica expects its planned acquisition of Vivendi’s Brazilian broadband unit GVT to generate at least €4.7bn (US$6.2bn) in synergies as a result of lower operating, network and financial costs as well as tax savings.
Following yesterday’s…
Telefonica expects its planned acquisition of Vivendi’s Brazilian broadband unit GVT to generate at least €4.7bn (US$6.2bn) in synergies as a result of lower operating, network and financial costs as well as tax savings.
Following yesterday’s announcement that the Spanish incumbent and French media group have entered exclusive negotiations on the GVT sale, Telefonica provided further details on the €7.45bn (US$9.83bn) deal in a presentation filed with the Spanish market regulator.
The Madrid-based telco said it would expect the deal to deliver net savings from the first year. Of the €4.7bn in expected synergies, Telefonica predicts €3.2bn (US$4.2bn) will come from operating and revenue synergies and €1.5bn (US$2bn) from financial and other synergies.
The telco described the deal as a “natural strategic move in a core market to improve market positioning and growth profile while improving financial flexibility”.
Telefonica plans to keep GVT as a separate business unit initially “to preserve its performance and operating model”. However, its local unit Telefonica Brasil (Vivo) – the country’s largest mobile operator – and GVT will develop their pay-TV business together and combine their product portfolios to sell to the amalgamated customer base.
Financing plans
Telefonica said it will fund the transaction entirely with equity. The €4.66bn (US$6.15bn) cash consideration to Vivendi will be financed through a capital increase at Vivo.
Telefonica will spend €3.4bn (US$4.5bn) in the capital increase to keep its 73.9% in the Brazilian unit, funding this with a capital hike at group level.
The telco has also offered Vivendi a 12% stake in Vivo, about a third of which the Paris-based company can exchange for 5.7% of the share capital and 8.3% of the voting rights in Telecom Italia (TI). Telefonica is the Italian incumbent’s largest individual shareholder.
During a conference call on the Vivendi’s H1 2014 results yesterday, CEO Arnaud de Puyfontaine described the option to exchange some Vivo shares for TI shares as “attractive”. However, the French company said no decision has yet been made on how long it would hold the Vivo shares for after a six-month lock-up period.
In its presentation, Telefonica said the transaction will ultimately strengthen its balance sheet as it consolidates GVT’s financials, generates synergies and reduces its net debt/EBITDA ratio.
The exclusivity period with Vivendi runs for three months. Telefonica expects to sign definitive agreements with Vivendi in November and to receive regulatory approvals and complete the deal in mid-2015.
Vivendi picked Telefonica’s offer over a €7bn bid from Telecom Italia yesterday, describing the Spanish telco’s offer as “particularly attractive” and noting that it will generate a capital gain of more than €3bn.
TI to stick with original game plan
Telecom Italia, whose €7bn (US$9.23bn) GVT bid lost out to Telefonica’s, has said it has noted Vivendi’s decision to enter into exclusive talks with Telefonica.
The Milan-based telco said it will continue to pursue its development and investment plans in Brazil in line with its current business plan, “leveraging on TIM Brasil’s strong position in the mobile market”.
“From the start, TI has made it clear that it would take a disciplined approach to its strategy in Brazil in order to maximise the value for all its shareholders”.
TIM, Brazil’s second-largest mobile operator, has been the subject of deal speculation itself recently, particularly since Brazilian telco Oi revealed earlier this week that it has hired BTG Pactual as “a commissioner” to review options for acquiring TI’s 67% stake.
Meanwhile, a recent Brazilian report recently claimed Vodafone is looking at entering the Brazilian mobile market, with TIM as its preferred target.
