Telefónica between a rock and a hard place on Brazil

Telefónica faces a difficult decision in Brazil after authorities there told the Spanish operator to sell assets in the country due to its growing influence over Telecom Italia, while a key shareholder in Telecom Italia said it opposed an enforced sale of the company's TIM Brasil unit.

The Brazilian antitrust watchdog, known as Cade, ruled on Wednesday that Telefónica must reduce its influence in the country by undoing its 2010 buyout of its partner in Vivo or the move to take over Telecom Italia shareholder Telco, or persuade Telecom Italia to sell TIM Participações SA, also known as TIM Brasil.

"The application of any of those remedies aim at creating a new competitor that would share the control of Vivo and Telefónica," Cade said in a statement.

Cade also imposed a 15 million reais ($6.4 million or €4.7 million) fine on Telefónica for increasing its stake in Telco, which owns 22.4 per cent of Telecom Italia, TIM Brasil's parent company.

However, rebel Telecom Italia investor Marco Fossati said he was opposed to the enforced sale of TIM Brasil as demanded by the regulator.

"The solutions imposed by Cade on Telefónica mustn't damage Telecom Italia. The solution cannot and must not be the forced sale of TIM," said Fossati, Reuters reported. Fossati's Findim holding company is the second largest single investor in Telecom Italia after Telco with a 5 per cent stake.

Telefónica told Reuters it was now studying the ruling and had not yet decided on the steps it will take.

"Telefónica visibly has to calm the Brazilian authorities," Jean-Michel Salvador, an analyst at AlphaValue in Paris, told Bloomberg. "On the other side, they have to persuade the Italians, who are still reluctant to sell."

Citing unnamed sources close to the situation, Bloomberg noted that Telefónica already favours a sale or breakup of TIM, which has a market value of almost $12 billion.

For more:
- see this Bloomberg article
- see this Reuters article
- see this Cade release

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