UPDATE 1-PT rejects Telefonica case, seeks Vivo solution

* PT says legal position solid to face Telefonica threats

* Still looking for solution on Vivo

* Shareholder confident deal can be reached, calls for talks

(Adds PT shareholder BES comments)

LISBON, July 22 (BestGrowthStock) – Portugal Telecom (PTC.LS: )
insisted on Thursday it has a strong legal case to defeat
Telefonica’s attempts to disband their Brazilian joint venture
but reiterated it would prefer a mutually acceptable solution.

“In reference to Telefonica (TEF.MC: ) threats on this
subject, PT has no doubts whatsoever about the solidity of its
legal position,” a PT spokesman said.

PT Chief Executive Zeinal Bava said last month lawyers had
advised him it would be impossible for Spanish telecoms operator
Telefonica to unilaterally disband Brasilcel, which controls
Brazil’s largest mobile phone company, Vivo (VIVO4.SA: ).

Even as the dispute shifts into the legal sphere, PT was
still trying to find an amicable solution on Vivo, the spokesman
said, but would not say if the companies were in any new talks.

“PT considers it prudent to keep looking for a solution
acceptable by all parties, regardless of the golden share veto,”
he said.

Telefonica, which on Saturday dropped its 7.15 billion euro
offer for PT’s stake [ID:nLDE66G02D], has hired U.S. law firm
Dewey & Leboeuf and Dutch firm De Brauw Blackstone Westbroek to
try to dissolve Brasilcel.

A Telefonica spokesman said on Wednesday the company planned
to highlight “PT managers’ possible failure to comply with
obligations to inform the market, having hidden from Telefonica
and PT shareholders the effective use of a golden share by the
Portuguese government”.

PT denied any failure to comply.

“The stance assumed by the board regarding the golden share,
which was communicated to the market, is based on legal
opinion,” the PT spokesman said.

The Portuguese government used its golden share in PT to
veto the sale of Vivo’s stake, approved by PT shareholders, at
the end of last month.

Analysts said Telefonica could yet strike a deal with PT and
the Lisbon government to avoid a battle lasting months or years.

Meanwhile, Ricardo Salgado, CEO of Banco Espirito Santo
(BES.LS: ) — PT’s largest shareholder with an 8 percent stake —
called for the resumption of talks between the two companies and
said he believed a deal could still be hammered out.

“Going to court is nonsense. We have to be pragmatic and
look ahead,” he said, adding that PT should let Vivo go or risk
a takeover bid by Telefonica.

“It is necessary to return to the negotiations table and
talk. There are issues to solve and to reach a deal that would
be good for everyone — PT, Telefonica, Portugal and Spain. I’m
confident this operation will end well,” he said, adding that
there were other business opportunities for PT in Brazil.

Analysts have long speculated that PT would seek to buy into
Brazilian telecom giant Oi (TNLP4.SA: ) to retain access to
Brazil’s buoyant market.

Portugal Telecom shares were up 2.4 percent at 8.13 euros,
outperforming the broader market in Lisbon, up 1 percent.

Investment Analysis

(Reporting by Elisabete Tavares and Sergio Goncalves, writing
by Andrei Khalip; Editing by Michael Shields and Samia Nakhoul)

UPDATE 1-PT rejects Telefonica case, seeks Vivo solution