SCENARIOS-Golden share ruling may intensify Vivo tug-of-war

* European Court of Justice to rule on golden share July 8

* Analysts see golden share nixed, upping stakes in Vivo war

* PT shareholders to vote on $9 bln Vivo bid June 30

* A rejection could see Telefonica bid for all of PT

By Filipa Lima and Andrei Khalip

LISBON, June 22 (BestGrowthStock) – A European court ruling next
month may up the stakes in Telefonica’s (TEF.MC: ) $9 billion
offensive to buy out partner Portugal Telecom (PTC.LS: ) from
Brazil’s Vivo (VIVO4.SA: ), by making possible a bid for all of
the Portuguese operator.

The European Court of Justice will decide on July 8 whether
the Portuguese government’s “golden share” in Portugal Telecom,
which allows it to block hostile takeovers, is legal.

Analysts expect the government to lose its veto rights,
following a preliminary court decision in December, which could
prompt Telefonica to launch a full takeover of PT, if the
latter’s shareholders reject the Vivo bid in a vote on June 30.

Telefonica has offered 6.5 billion euros ($8.72 billion) for
Portugal Telecom’s stake in their Vivo joint venture, which is
Brazil’s largest mobile phone company and 60-percent controlled
by Brasilcel, in which PT and Telefonica each hold 50 percent.

Here are some possible scenarios linked to the golden share:

TELEFONICA BID FOR VIVO REJECTED:

* Shareholders reject Telefonica’s bid at their
extraordinary general meeting on June 30. Two major Portuguese
shareholders in PT, BESI and Ongoing, have already said they
intend to vote against the bid as it does not reflect Vivo’s
strategic value to Telefonica.

A rejection would mean that PT preserves its most valuable
asset, but would be unlikely to deter the Spanish giant, which
wants to merge Vivo with its struggling fixed-line Brazilian
unit Telesp, to shore up a key market and offset stagnating
sales in Spain.

In this case, a court ban on the “golden share” a few days
after the meeting would create an additional opportunity for
Telefonica, which may choose to make a bid for all of its
smaller Portuguese rival.

Some analysts suggest PT shareholders would be better off
rejecting the latest offer for Vivo, as it would make an
attractive full bid for PT from Telefonica more likely.

Telefonica Chief Financial Officer Santiago Fernandez
Valbuena said in May the company was keeping open the option of
launching a hostile takeover bid for PT if it refuses to sell
out of Vivo.

“The cancellation of the golden share may reopen a full bid
case,” Exane BNP Paribas analysts said in a research note.

They say that a bid of 12.5 euros a PT share — a price
derived from Telefonica’s bid for Vivo — could be well-received
by PT shareholders. PT shares were practically flat at 8.84
euros on Tuesday.

TELEFONICA BID ACCEPTED:

* By selling Vivo, PT would lose most of its appeal and a
tender offer for all of PT would be unlikely regardless of the
court decision.

“All in all, after selling Vivo the elimination of the
golden share would probably have a minor impact in terms of PT’s
speculative angle,” Banif analyst Teresa Martinho said.

COURT PRESERVES STATUS QUO:

* Telefonica can still raise its bid for Vivo or walk away.
PT has said it expects to create more value for shareholders
from its Vivo stake, taking advantage of the booming Brazilian
market.

ING analysts said Telefonica “could offer an additional
billion euros and still be left with a value accretive
position”.

Analysts say the veto right may actually never be used, but
it remains an important deterrent for a takeover bid.

The Portuguese government has said PT is a strategically
important company and has not ruled out the use of veto rights.
It has also said that the sale of the Vivo stake is not a case
where the golden share could be used, even though if favours
preserving PT’s global reach and presence in Brazil.

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($1=.7453 Euro)
(Writing by Andrei Khalip; editing by Simon Jessop)

SCENARIOS-Golden share ruling may intensify Vivo tug-of-war