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European Union Court ruling signals near conclusion of Vivo stake sale

In a move that might bring to an end the long standing Portugal Telecom’s sale of its Vivo stake to Telefonica, the European Court of Justice last week ruled the Portuguese government’s move to block the potential sale given its golden share in Portugal Telecom (PT) violated EU rules. The Portuguese government shocked Portugal Telecom investors who had consented to the sale, by about 70%, of its unit in Vivo, Brazil’s major cellphone firm, to its JV partner Telefonica.

 

The Portuguese government said it would comply with the court ruling but vowed to find a mechanism that allows it comply with EU laws while safeguarding its National interests at the same time. Analysts were quick to point out that the Portuguese government might be keen on wringing concessions from Telefonica.

 

Jose Manuel Barroso, the European Commission President, a Portuguese national himself, lauded the court’s ruling, reiterating the opinion that golden shares ruin the single market. This ruling comes amidst ongoing European Commission’s moves to eliminate golden shares over the gone five years, viewing it as a stumbling block to cross border investment opportunities.

 

Elsewhere, Silva Pereira, a Portuguese cabinet Minister, said the government was keen on safeguarding its national interests, adding that the courts ruling was not “retroactive,” but the government still feels its concerns over Portugal Telecom’s move are justified. Pundits expect Telefonica might have to play along with the Portuguese government’s machinations by tabling the offer in a way that is favorable to the government.

 

The Minister reiterated the government’s view, that national interests would be secured if Telefonica agrees never to make an offer for all of Portugal Telecom, or better yet, that it will vote its stake in PT in favor of the company’s board, he said. The Portuguese government has maintained its view that PT’s stake in Vivo is of national interest and as such, reflects the country’s international presence in its former colony, Brazil.

 

Pundits expect the ruling to speed up Telefonica’s purchase bid for PT’s Vivo stake, however, negotiations are expected to resume soon between PT and Telefonica and the two might have to mollify the Portuguese government. With the pronouncement of the ruling, Vivo shares went up 1.2% in trading whereas PT shares declined by 0.6% and Telefonica went up 1.2% as well. Telefonica reiterated that the EU Court’s decision justified its bid for PT’s Vivo stake.

 

12 July 2010.