Spanish telecommunications company Telefonica raised its offer for Brazilian rival GVT on Wednesday by 5.2 percent, seeking to trump a potential counteroffer by French media group Vivendi and seal a deal by the end of the month.
Management at Telefonica's Telesp unit raised the offer in order to ensure the success of its bid and to reinforce its intention to buy GVT, according to a regulatory filing. Under the new terms, the bid was upped to 50.50 reais a share, or $3.9 billion, from 48 reais a share, or $3.7 billion, previously.
The move sent GVT shares as much as 1.4 percent higher to 51.70 reais -- above the improved Telefonica offer. They later backtracked slightly and were trading 1.18 percent ahead at 51.60 reais.
The decision was based on GVT's encouraging third-quarter results, the filing said. GVT, which is based in the southern Brazilian city of Curitiba, reported net income of 57.2 million reais ($33 million) for the quarter, compared with a loss of 14.8 million reais a year earlier.
Faced with eroding margins and saddled with fines for poor service in Sao Paulo state, Telefonica needs GVT to revive bottom-line growth. The decision to boost the offer highlights the company's willingness to grab GVT and trump any additional offer by Vivendi or any other suitor, analysts said.
Telefonica is sending a message to any bidder, that much more money will be needed to trump them, said Valder Nogueira, a telecommunications and technology analyst with Sao Paulo-based Itau Securities.
On Tuesday, GVT shareholders unanimously agreed to remove a poison pill clause that was an obstacle to a merger by making takeover bids too costly. The waiver of the defense clause was set as a precondition by Telefonica and Vivendi to proceed with any takeover attempt.
Paris-based Vivendi, whose $3 billion friendly approach hasn't been formalized yet by the board, declined to comment.
Vivendi is still monitoring the GVT situation despite an apparent set-back to its bid, a source close to the matter told Reuters on Wednesday.
It is still unclear how GVT's controlling shareholders, the Swarth Group and Global Village Telecom, will treat an agreement they signed with Vivendi on September 9 to sell Vivendi at least 20 percent of the outstanding shares.
Is there any break-up fee, is there anything that could shed some light on their accord? We don't know, Nogueira said.
At the time, Vivendi said it would seek to obtain control of at least 51 percent of GVT shares.
Most analysts doubt that Vivendi will seek to trump Telefonica's offer.
To muscle out Telefonica, Vivendi would have to offer a minimum 53.02 reais a share. But the French giant has a long-standing policy of only buying assets that won't risk its investment-grade debt ratings and its policy of paying high dividends.
Telefonica has said it expects regulatory approval from the Brazilian telecommunications industry watchdog Anatel before an offer, initially set for November 19.
(Additional reporting by Robert Hetz in Madrid and Dominique Vidalon in Paris, editing by Dave Zimmerman)