Brazil calling

Brazil calling

by The Economist online | PARIS

NOW we know the going rate for a government to save face: €350m ($455m). Spain's Telefónica first bid €5.7 billion for Portugal Telecom's stake in Vivo, a fast-growing Brazilian mobile operator. Spurned, it lifted its offer to €6.5 billion and then to €7.15 billion, a price which some analysts judged crazily high, and which PT's shareholders leapt at. But the Portuguese government unexpectedly vetoed the transaction on June 30th, invoking the national interest. Now, though, it has rolled over and allowed the deal, but only after it made Telefónica add another €350m to its last offer, already accepted by 74% of PT's shareholders, for exactly the same asset. Telefónica's owners now know for sure it is overpaying.

Lisbon's hand was badly weakened when the European Court of Justice said its golden share in PT was incompatible with European Union rules, just a week after it blocked the deal. But Telefónica faced a legal battle to challenge the use of the golden share before the court's ruling. It couldn't wait long to resolve its troubles in Brazil, where its fixed-line business, Telesp, is struggling. Now it can merge Telesp with Vivo, earning itself some cost savings. As well as the extra €350m, Lisbon won another important point. PT will stay in Brazil by buying a 22% stake in Oi, the country’s biggest telephone firm, for 8.4 billion reais ($4.8 billion).

So PT looks like the obvious winner. Zeinal Bava, its markets-oriented chief executive, will be even more celebrated by shareholders for extracting every penny from the Spanish, and then some. Telefónica paid 14% more than PT’s entire pre-bid market capitalisation for the stake in Vivo, which brings in under half of the Portuguese firm’s revenues. César Alierta, Telefónica’s tough-guy chairman, has an uphill battle to prevent today’s deal going down on his record as an expensive folly. For now, to be sure, Vivo looks a far more attractive asset than Oi. With its subscale mobile-phone business, Oi will likely resort to discounting, harming its much larger fixed-line business, according to Bernstein Research. Mr Bava believes in a mobile future but has ended up with a mainly fixed-line operator. The desperation of both old-European firms to get a foothold in a fast-growing overseas market is plain.