Telefónica agreed to acquire Vivendi's Brazilian broadband business GVT for just over €7 billion ($9 billion) in cash and stocks, following three weeks of exclusive negotiations.
Vivendi revealed it signed a definitive agreement to sell its Brazilian subsidiary for €4.66 billion in cash. The company will also receive 7.4 per cent of Telefónica Brasil shares at a stock market value of €2.02 billion, and 5.7 per cent of Telecom Italia shares at a value of €1.01 billion, taking the total transaction price to over €7 billion.
A bank debt of around €450 million will be deducted from the cash portion of the deal, along with adjustments in working capital. Vivendi will also be liable for tax payments--including capital gains tax--of around €500 million.
Telefónica will finance the cash element through a capital increase at Telefónica Brazil. The operator said the combination of its Brazilian business with GVT will generate synergies of at least €4.7 billion, and make the company Brazil's leading integrated telecommunications operator.
Vivendi noted the transaction must be approved by Brazil's telecoms regulator Anatel, and the country's competition regulator Cade. The company predicts final approval for the sale of GVT will be received during the first half of 2015.
Telefónica originally offered €6.7 billion for GVT, but was forced to up its bid when rival Telecom Italia offered €7 billion for the broadband business in a deal comprising €1.7 billion in cash with the remainder coming through shares in TIM Brasil and Telecom Italia itself.
Vivendi rejected Telecom Italia's effort in favour of exclusive talks with Telefónica--a decision the company stated at the time was in the best interests of its shareholders.
The GVT decision leaves Telecom Italia in a precarious position in the Brazilian market following widespread reports that local operator Oi is eyeing an acquisition of Telecom Italia's local business TIM Brasil. The Italian incumbent, along with Telefónica, is keen to shore up its position in Brazil, which has become a key driver of earnings growth amid stagnation in the two operators' domestic European markets.
Vivendi enters into exclusive talks with Telefónica on GVT
Telecom Italia offers €7B for GVT as Telefónica ups bid
Reports: Telefónica, Telecom Italia prepare GVT bidding war, as Oi eyes TIM Brasil
Report: Vodafone targets TIM Brasil acquisition to enter Brazilian mobile market
Report: Telecom Italia preparing €7B bid for Vivendi's GVT