Telecompaper

French communications and entertainment group Vivendi has launched a takeover bid for Brazilian broadband operator GVT, valuing the company at BRL 5.4 billion (EUR 2.0 billion). The move shifts Vivendi's telecoms focus from France's SFR and Africa, where it controls a number of operators through Moroccan incumbent Maroc Telecom, to a new market where it has no presence, Latin America. While the move may be surprising, the growth prospects on the Brazilian broadband market and GVT's position at the top end of the market suggest that the acquisition, if successful, should prove profitable.

Brazil is one of the fastest growing broadband markets in the world. According to the latest statistics from the Broadband World Forum, the country had 10.5 million lines at the end of June, making it the ninth largest broadband market in the world. The market grew by 4 percent sequentially in Q2 and was up 23.2 percent from a year earlier in H1. Started in 2000, GVT has been a leader in bringing fast broadband to the market, most recently introducing speeds of up to 100 Mbps download. The company is targeting the corporate and high-end consumer markets and had over 20 percent of its customers taking speeds of more than 10Mbps as of June 2009. As a first-mover on the top-speed market, GVT should benefit from the chance to lock in first-time users with new services such as VoIP. GVT also compares favourably on pricing, offering more than twice the bandwidth as similarly priced offers at rivals Telefonica and Oi. GVT is active only in certain regions of Brazil, but holds licences for national coverage. With the financial backing of the French company and Vivendi's experience from rolling out triple-play services to the mass market in France, GVT should be able to quickly expand its reach. Vivendi's stable of media assets - films, video games, music - should also help boost the appeal of its broadband services. GVT recently signed a deal to bundle its services with the Sky pay-TV service, but the takeover by Vivendi could pave the way for a launch of Canal+ services in Brazil.

Vivendi's statement on the takeover termed the deal a "strategic partnership" with GVT, suggesting that the French company is aware that it is unlikely to get full control of GVT. Anti-takeover clauses at GVT require any bidder to make an offer at least 25 percent above the highest share price over the last 52 weeks, which would be BRL 47.5. Vivendi has offered only BRL 42 per share, but has the backing of holders of at least 20 percent of the shares, who have been looking to exit GVT. Vivendi aims to acquire at least 51 percent of the company, and is hoping to secure a waiver from shareholders on the anti-takeover clauses. Even if Vivendi does not secure 100 percent of GVT, the Brazilian company's stock market listing may prove useful for later capital-raising to fund expansion.

Vivendi's bid values GVT at BRL 5.4 billion, or 9.4 times EBITDA based on profits of BRL 574.1 million for the year to June 2009. This provides some useful insight into the valuations and opportunities in the telecoms M&A market at the moment. A couple months ago Vivendi was in talks to acquire the African activities of Kuwait-based mobile operator Zain. The French company eventually abandoned the talks because the price was too high. For Vivendi, the GVT takeover represents a better deal, as GVT is already established in high-margin, high-growth markets. Achieving a similar return on investment in Africa would likely take much longer and require significantly more investment in network roll-out. If successful, the GVT takeover also lays the groundwork for further expansion in Latin America, opening up new growth markets for Vivendi.