Telefonica to buy Vivo from Portugal Telecom

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Spanish telecoms giant Telefonica said on Wednesday it has reached an agreement in principle to buy Portugal Telecom's stake in Brazilian operator Vivo in a deal worth 7.5 billion euros.

"The agreement will be submitted for approval to the board of both firms, which are scheduled to meet today," it said in a statement.

Telefonica and Portugal Telecom jointly own Vivo via investment vehicle Brasilcel, which holds 60 percent of the company.

Meanwhile, Portugal Telecom said in a separate statement that it had approved the sale of its stake in Vivo to Telefonica and concluded a "strategic partnership" with Oi, another Brazilian phone company.

Under the deal, Portugal Telecom will acquire a 22.38 percent stake in Oi for a maximum investment of 3.7 billion euros (4.8 billion dollars).

Both Telefonica and Portugal Telecom see fast-growing Brazil as a key market as they face stagnant growth in their domestic markets.

Telefonica's initial offer of 5.7 billion euros for Portugal's stake in Vivo was immediately rejected by Portugal Telecom's board in May.

Telefonica then raised the offer to 6.5 billion euros and then to 7.15 billion euros last month.

The overwhelming majority of Portugal Telecom shareholders, 74 percent, voted to accept that offer but the Portugal's socialist government used its "golden share" in Portugal Telecom to block the sale.

Earlier this month, Portuguese Prime Minister Jose Socrates defended his government's move, saying in a newspaper interview that "it did what it had to do to defend the strategic interests of Portugal and Brazil."

Portuguese media reported that Lisbon accepted Telefonica's latest offer of 7.5 billion euros because the amount allowed Portugal Telecom to comfortably buy a stake in Oi and thereby remain in the Brazilian market.

Portugal Telecom is one of the country's largest firms and analysts had said that if it were to leave the Brazilian market, it would shrink considerably, leaving it open to a takeover by another operator.

© 2010 AFP

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