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Spanish telecom company Telefonica withdraws its bid for Portugal Telecoms’ Vivo Stake

After a protracted wait for the acquisition of its joint venture partner’s stake in the Brazilian telecoms giant, Vivo, the Spanish telecoms company, Telefonica Monday announced it had withdrawn its contention for the stake purchase. The Spanish company withdrew a planned $9.26 billion takeover bid it had launched for the complete takeover of its Brazilian wireless JV with the Portuguese telecoms firm after the Portuguese government barred the investment, forcing an intervention from the European Union.

The move comes after two day’s of uneventful meeting with Portugal Telecom’s board that had sought a sweetened deal from Telefonica for the purchase. However, no agreement was reached in the meeting or any new proposals given, ending in stalemate that saw the Spanish firm quit altogether. The deal as it was would have seen Telefonica pay about $9.24 billion for Portugal Telecom’s 50% stake in Brasilcel, the Brazilian holding firm that controls Vivo.

Vivo is currently the single biggest wireless operations firm in Brazil. In a statement over the weekend, Telefonica reiterated that its offer had expired without giving further details over what it plans to do. The move to quit the offer has put Portugal Telecom in a somewhat uncomfortable situation as its investors had approved the deal by about 70%. On the other hand, the Portuguese government has once again contravened the European Union’s decision over its golden share used in rejecting Telefonica’s initial bid.

With Telefonica’s announcement, the EU was quick to censure the Portuguese government terming the move to totally block Telefonica’s bid as “protectionist” and adding that it breaches the rules that govern free movement of capital in the EU. At the same time, the Portuguese government validated its reasons for rejecting the bid, arguing that maintaining a presence in the Brazilian market is “strategic and fundamental for the development of Portugal Telecom,” Jose Socrates, Portugal’s Prime Minister said.

Earlier Friday, the Portuguese government had vowed to go ahead with its decision to block Telefonica’s bid in spite of the EU’s ruling. Analysts feared that Telefonica’s decision to quit the bid might send Portugal Telecoms shares on the down trail given the fact that the Spanish company’s offer had taken up Portugal Telecom’s value recently. Analysts had believed the deal was fair and even generous after Telefonica had upped it twice to gain the support of investors. Subsequently, Analysts believe Portugal Telecom might find it hard attracting an alternative investment with regard to its declining domestic business in Portugal.

19 July 2010.