Telefonica Now Brazil’s Likeliest Consolidator

Spain’s Telefonica is the best-prepared and likeliest buyer of telecom assets in Brazil in the medium term, according to analysts at JPMorgan. Speaking on a call last week, analysts note that among the three European telecoms operating in the country – Telecom Italia (TI), Portugal Telecom (PT), and Telefonica – the Spanish operator has the strongest balance sheet position to support acquisitions. TI and PT are both under pressure back at home, and may be tempted to sell their holdings if their liquidity issues persist, say analysts Jonathan Dann, who covers European Telecoms, and Andre Baggio, who covers Brazilian carriers. “More than 100% of the cash [PT and TI] produce will go towards refinancing [debt,]” says Dann, adding both are at the mercy of the bond market. TI has a mobile unit in Brazil called TIM Brasil, while PT shares ownership of mobile operator Vivo with Telefonica. Telefonica, which owns 80% of Telesp’s shares, may also consider using the stock to acquire TIM or the portion in Vivo it doesn’t already own. But neither TI nor PT appear willing to part with the assets quite yet, say the analysts. An analyst at a Brazilian shop who declined to be named agrees Telefonica is well positioned, and notes America Movil is the region’s other well-capitalized and deal-hungry player. But he doesn’t see either aggressively chasing deals in the coming several months. “They’ll likely let their competitors weaken even more before trying to acquire them. Now is not the time to buy,” he concludes. With regards to non-mobile assets, both America Movil face regulatory impediments when it comes to acquiring cable assets in Brazil, thanks to laws that prevent foreign ownership of assets. Telemar, which is in the process of acquiring Brasil Telecom for some BRL16bn, makes up LatAm’s third major player, notes the analyst.