Spain's Telefonica offered on Wednesday to buy Brazilian telecommunications company GVT for 6.5 billion reais ($3.7 billion) in cash, seeking to trump a bid by French rival Vivendi.

Telefonica's local fixed-line phone unit Telesp offered to buy up to all of GVT's shares for 48 reais each. The bid was largely expected after Vivendi failed to sweeten its September offer of 42 reais a share.

Rivals in Brazil's burgeoning telecom market see control of GVT as key to expanding into high-quality broadband services and access to markets the largest phone companies have tapped timidly, analysts said.

A combination of Telefonica's Telesp unit and GVT makes sense because there is a perfect geographical fit. It is a complementary business model and financially ... we could grow and generate cash, said Telesp's investor relations director Gilma Camurra told analysts in a conference call.

Shares of Curitiba, Brazil-based GVT surged as much as 15 percent to an all-time-high after Telesp disclosed the offer in a regulatory filing. Camurra said that if the bid succeeds the regulatory approval process should be swift.

GVT was trading at 46.90 reais, or 14.6 percent higher than Tuesday's closing price, in late afternoon trading.

GVT's focus on high-usage and high-margin customers and its telecom network of more than 15,000 kilometers (10,000 miles) have long been seen as attractive to bigger rivals eager to expand their geographic reach in the country.

Curitiba, Brazil-based GVT has quickly gained market share in the regions in which it operates by pricing services below the competition given the absence of outdated network costs.

The fact that Telesp and GVT have no geographical overlap would pave the way for swift approval by the telecommunications agency Anatel, by passing the antitrust regulator Cade, Camurra and other executives at Telesp said.

Telefonica is still gauging the sources of financing for the transaction, Camurra said at a separate conference call with analysts.

GVT's management could be invited to stay if the bid succeeds, the Telesp executives said.

VIVENDI'S FORAY

Vivendi's unexpected foray into Brazil's telecommunications market underscores the strategic importance of the small but rapidly growing fixed-line operator that offers Internet services to high-end customers.

But analysts had foreseen hurdles in Vivendi's $2.9 billion offer because of GVT's poison-pill clause, which bars a change in control of the company unless a bidder offers at least a 25 percent premium to the stock's highest price over the past yea.

For Telefonica, GVT would be key to expand its limited infrastructure beyond Telesp's home market of Sao Paulo, Link Corretora analyst Maria Tereza Azevedo said recently.

Any bid to win control of GVT should have come above 47.2 reais to meet the poison pill, according to Thomson Reuters data.

The company trades at a premium relative to its peers in the market, according to estimates by Morgan Stanley. Since its listing in 2007 through September last year, GVT traded at a an average 60 percent premium to Telesp.

In comparison with the price that GVT was trading at in recent days, I think the (size of the) Telefonica offer was unexpected, said Kelly Trentin, an analyst with Sao Paulo-based brokerage SLW Corretora.

A Vivendi spokeswoman in Paris declined to comment.

It is far from certain that Vivendi will want to start a bidding war, said Bruno Hareng, analyst at Oddo Securities.

Management and controlling shareholders at GVT could favor Vivendi as a partner because the French company would be willing to fund the company's incursion into highly profitable segments such as Internet TV and expansion into Sao Paulo and Rio de Janeiro, Brazil's largest cities, Chief Executive Amos Genish told Reuters on September 9.

One analyst said Vivendi did not overbid for GVT, so it has some margin for maneuvering -- plus the financial means to counterbid -- but a bidding war might not go well with Vivendi's shareholders.

Telefonica fell 1.6 percent to 19.03 euros, while Vivendi fell 0.6 percent to 20.83 euros.

($1=1.756 reais)

(Additional reporting by Elzio Barreto and Luciana Lopez in Sao Paulo and Dominique Vidalon in Paris, editing by Gerald E. McCormick and Carol Bishopric)