Telecom Italia shares plunge as Telefónica offers €6.7bn for Vivendi Brazilian unit

The Vivendi office is seen in Paris on Wednesday, May 17, 2006.Shares in Telecom Italia were suspended today after Telefónica offered to buy Vivendi’s Brazilian telecom interests in a deal that could see the latter take over part of the Spanish telco’s stake in the Italian operator.

Telefónica has offered to buy Vivendi’s Brazilian telecom unit GVT for BRL20.1 billion (€6.7 billion), comprising 60% cash and 40% in shares in Telefónica Brasil’s Vivo. The share component would give Vivendi a 12% stake in the combined entity.

The proposed deal would also give Vivendi the opportunity to acquire 8.1% of Telecom Italia, in which Telefónica is the biggest single investor with a 14.8% stake. Telefónica has proposed, if Vivendi accepts, to transfer the shares on completion of the Brazilian deal.

This has been interpreted in Italy as a sign that Telefónica could be seeking an exit from the Italian telco, leading to the operator suffering a drop of almost 5% in the value of its stock and the suspension of trading this morning.

Vivendi responded to the offer by saying none of its subsidiaries are for sale and that its strategy is “to create an industrial Group focused on the organic growth of its activities and to support them in their development”. However, it said that its supervisory board “will consider the Telefónica offer at its next meeting, in the best interests of its shareholders and the GVT employees, and will decide what action to take as a result”.

While Vivendi has been seeking to exit the telecom market in France, through the sale of SFR, it has grouped GVT with its media assets. At the end of last year, the company abandoned plans for a pay TV joint venture between GVT and Echostar.