Portugal defends veto on Spanish telecom takeover

1st July 2010, Comments 0 comments

Portuguese Prime Minister Jose Socrates said on Thursday that national interests drove his decision to block a huge bid by Telefonica of Spain to buy part of Brazilian telecom firm Vico held by Portugal Telecom (PT).

"The government did what it had to do to defend the strategic interests of Portugal and Brazil," Socrates argued in an opinion piece for the newspaper Politico.

The Portuguese state, which acted to veto the Telefonica move at a meeting of PT shareholders on Wednesday, holds a special "golden share" in Portugal Telecom enabling it thwart takeovers.

The Telefonica bid nonetheless had the backing of 73.9 percent of PT shareholders.

"No-one trampled on the legitimate and understandable rights of the other shareholders," Socrates insisted.

"The state took action simply to ensure that its rights were not ignored."

Telefonica, seeing Brazil as essential to its financial development, raised its offer for PT's 50-percent stake in Brasilcel, which controls Vivo, to 7.15 billion euros (8.7 billion dollars) late on Tuesday.

"PT's participation in Vivo is strategic. Vivo is the leading telecommunications operator in Brazil," Socrates said.

"The internationalisation of PT and its presence in Brazil is absolutely essential to the Portuguese economy.

"I well understand the Spanish interest in acquiring a company like Vivo, just as I understand the interests of PT shareholders in securing short-term gains.

"But the Portuguese state is not bound to defend the interests of Spanish companies, nor short-term financial interests, but the strategic interests of the country."

Several analysts forecast on Thursday that Telefonica would eventually succeed in taking control of Vivo, notably in light of an upcoming decision on the Portuguese golden share from the European Court of Justice.

The battle for Vivo "is certainly going to be continued in the legal arena," said economist Jose Cesar Neves.

A headline in the newspaper Diario Economico read: "The state will not prevent the sale of Vivo."

Some analysts nonetheless share Socrates' contention that Vivo is a strategic asset for Portugal and criticised the decision by shareholders to back the sale.

The Telefonica offer "represented a lot of money, especially at a time when liquidity is lacking," said Armando Esteves Pereira, director of the Correio da Manha newspaper.

Other commentators spoke of what one termed the government's "atomic bomb on the shareholders."

"Jose Socrates has nationalised PT," asserted Antonio Costa of Diario Economico, adding that it was the first time the state had exercised its golden share to veto a transaction.

Telefonica on Wednesday contended that the government action had been illegal and decided to extend its offer to July 16.

The company is banking on a decision from the European Court of Justice on July 8 on regulations giving voting rights to the Portuguese government that largely exceed its stake in a company.

"The most likely scenario is that in the next few days the validity of the state's golden share veto will be called into question and that the vote by the shareholders will stand," predicted Guy Pedy of the Macquarie agency, quoted by the newspaper Jornal de Negocios.

© 2010 AFP

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