Vivendi may throw in the towel on its attempt to buy Brazilian telecom company GVT after being trumped by a 2.6 billion euro ($3.8 billion) counterbid from Spain's Telefonica.

Vivendi has walked away from deals in the past because it did not want to overpay and expansion in Brazil is not that crucial for Europe's largest entertainment group, analysts say.

We doubt that Vivendi will engage in a bidding war for GVT (Brazil after all is not strategic for them) and the management team has shown discipline and avoided overpaying in recent negotiations, Bernstein Research analysts said in a note.

Telefonica's local fixed-line phone unit Telesp on Wednesday offered to buy GVT for $3.9 billion in cash, seeking to trump Vivendi's $2.9 billion offer made on Sept. 8. [ID:nN07480985]

Telesp's bid came a few days before an Oct.16 deadline for completing due diligence on the Vivendi's offer for GVT.

A source close to the situation had told Reuters on Wednesday Vivendi's board would meet on Oct. 14 to discuss the GVT deal and it was not clear if that meeting was still on.

A Vivendi spokeswoman declined comment except to say: As of last week due diligence (on GVT) was being finalised.

A counter-bid had however been expected after Vivendi had failed to sweeten its September offer of 42 reals per GVT share. Telesp is offering 48 reals, a 15 percent premium.

We think that Vivendi won't raise its offer as it won't be able to realise the same synergies from a deal (as Telefonica) and that this therefore represents a knockout bid, said Citi analysts in a note.


Vivendi, which owns Maroc Telecom and France's second-biggest mobile phone operator SFR, targeted GVT as part of its plans to expand in emerging markets. In July it ended talks to buy a majority stake in the African telecoms assets of Kuwait's Zain, saying it did not meet its financial criteria.

Two of Vivendi's key financial commitments are distributing a strong dividend and retaining a BBB rating on its debt.

Vivendi, which had no assets in Brazil, cannot reap the potential synergies afforded by Telefonica's long presence there via Telesp and mobile operator Vivo VIV04.SA, analysts said. [ID:nL8113126]

Vivendi has said the cash outflow from the GVT deal ranged from 1 billion euros for securing 51 percent to 1.8 billion for 90 percent of the company. It planned to fund the deal with debt and existing credit facilities.

Before it announced plans to bid for GVT, Vivendi had said it expected net debt to decline to slightly over 7 billon euros at end-2009 from 8.5 billion at end-June 2009. Analysts warned of the impact on its finances if it tried to meet Telefonica's terms.

Matching the Telefonica offer would raise the EV/EBITDA 2010 ratio to 8 times from 7 times, increasing the potential cash out to 2.1 billion euros from 1.8 billion, which would go badly with the market, said CM-CIC analyst Eric Ravary.

Analysts at UBS said in a note: There is a moderate risk Vivendi will return with a higher offer and this is likely to be negative for investor sentiment ... Should Vivendi decide to withdraw its offer for GVT, there could be a short-term relief bounce.

However, we believe Vivendi will embark on further M&A in the emerging market telecoms space as it seeks to boost earnings growth and investors are likely to be wary of any large scale M&A, particularly if it puts pressure on the balance sheet or dividend.

At 0925 GMT, Vivendi shares were off 0.1 percent at 20.80 euros, underperforming the European media sector.

(Editing by David Holmes)

($1=.6775 Euro)