GVT Bidders Risk Overextending

Potential bidders considering paying GVT shareholders more than Telesp’s BRL48.00 a share offer, made last week, run a series of risks, say analysts. For Vivendi, which put in the first bid at BRL42.00 for the Brazilian telecom and is reported to be considering topping Telesp, the main risk is overpaying. Any new bid must be BRL50.40 per share or higher, according to Brazilian tender offer rules. “Considering the BRL48.00 a bid values GVT very well, we don’t think Vivendi or another company in the sector will be able to make a higher offer,” says Banif-Ixe. Vivendi has no telecom business in Brazil and thus cannot reap the same synergies as Telesp, says an executive familiar with the latter’s view. Telmex International’s Embratel could, however offer a compelling bid from an operational standpoint. “Telmex International may have the capacity to lever up to acquire the company, but it would probably threaten its ratings,” notes Sergio Rodriguez, telecom analyst at Fitch. He notes that the latest numbers for the company show $400m in cash on hand, debt of around $2bn and a leverage ratio of 1.4x. However, spending big on GVT, which has analogous businesses to Embratel’s Vesper and Vesper Sao Paulo, might leave it short on cash and leverage capacity if and when an opportunity to acquire a controlling stake in NET Servicos arises next year, says Rodriguez. GVT is holding a shareholders meeting November 3 to waive its poison pill clause to allow for a takeover at BRL48.00 a share. Telesp’s tender offer for the company expires November 18. JPMorgan and Santander are advising Telesp. Credit Suisse is advising GVT, and BNP Paribas is helping Vivendi.