* Telefonica wins out with higher bid than Telecom Italia
* Telefonica bid worth 7.45 bln euro in cash, shares
* Vivendi to sell last telecom business to focus on media
* GVT sale comes amid consolidation push in Brazil
(Updates with Telecom Italia statement)
By Leila Abboud
PARIS, Aug 28 French media company Vivendi
picked Telefonica for exclusive talks over the
sale of its Brazilian broadband unit GVT, spurning a rival bid
from Telecom Italia.
Telefonica will fold GVT into its Brazilian mobile phone
carrier Vivo to create the country's biggest telecom
group. It will then use GVT's pay-TV and broadband know-how and
its broad network to chase higher-value customers and keep
profits growing as mobile subscriber growth slows.
Vivendi's decision deals a blow to Telecom Italia, which
needed GVT to shore up its own Brazilian mobile business Tim
Participações, which lacks a fixed-line network.
For Vivendi, the GVT sale caps a tumultuous two-year
overhaul in which it sold three telecom businesses and its video
games arm to pay down debt and focus more on media and content.
"The Telefonica offer best meets the group's strategic and
financial objectives," said the French company.
"Vivendi begins a new phase in its development to become an
integrated industrial group focused on media and content."
In a statement late on Thursday Telecom Italia acknowledged
Vivendi's decision to choose Telefonica for exclusive talks over
"From the start Telecom Italia has made it clear it would
take a disciplined approach to its strategy in Brazil," it said,
adding it would continue to pursue development plans in the
country in line with its 2014-2016 business plan.
Vivendi will get 4.66 billion euros ($6.1 billion) in cash
from Telefonica, which boosted the cash element of a previous
bid to see off Telecom Italia.
Vivendi will also get a 12 percent stake in the combined
Vivo-GVT, of which about one-third could be exchanged for a 5.7
percent stake in Telecom Italia if Vivendi so chose.
Telefonica is Telecom Italia's largest shareholder but the
two have had a tense relationship for years as they also compete
French tycoon Vincent Bollore, who is Vivendi's largest
shareholder, led the talks with Telefonica and Telecom Italia in
recent weeks, in his first major strategic move since taking
over as chairman in June.
Bollore wants to get Vivendi's remaining units, which
include Universal Music Group and French pay-TV operator Canal
Plus, to work more closely together to generate growth.
Vivendi is also expected to build up its media and content
activities via acquisitions, and will be flush with cash even
after returning money to shareholders.
The French company is likely to take up the option to be
paid for GVT partly in Telecom Italia shares, said two people
close to the company.
Vivendi Chief Executive Arnaud de Puyfontaine said such a
stake could be "attractive" and played down investors' concerns
about whether the group was going back on its pledge to move out
"Our strategy is to be an integrated media group but
opportunistically we can hold minority stakes in telecoms," he
said. "The priority is to ensure the widest possible
distribution and monetisation of our content."
After the GVT sales closes in mid-2015, Vivendi will own
stakes in French telecoms group SFR, which it is in the process
of selling to Numericable, Telefonica Brasil, and
potentially Telecom Italia.
Winning GVT was crucial for both Telefonica and Telecom
Italia since their European home markets have been shrinking.
Brazil brings in one-fifth of Telefonica's revenue and one-third
of Telecom Italia's sales.
Telefonica has coveted GVT since it lost an initial bidding
war to Vivendi to buy the company in 2009.
With GVT, Telefonica will gain a much bigger broadband
network in Brazil without having to build it. Vivo is the
country's third-biggest broadband provider but is concentrated
around the Sao Paulo region, whereas GVT has built coverage
elsewhere, such as in Rio de Janeiro, the south and northeast.
Telefonica will carry out capital increases at the group
level and at Telefonica Brasil to pay for the GVT deal.
Telecom Italia looks unlikely to come back with a new offer.
Analysts say its balance sheet is too stretched and its chief
executive has pledged not to do anything "crazy" in a bidding
Its losing bid, also a cash-and-shares offer, valued GVT at
7 billion euros, including 1.7 billion euros in cash, a 16
percent stake in Telecom Italia and a 15 percent stake in the
new Brazilian entity.
Telecom Italia's Tim, number two in Brazil's mobile market,
may now be vulnerable to a takeover by rival Grupo Oi
, which is exploring a bid to split up Tim between
itself, Mexico's America Movil and Telefonica.
Telecom Italia shares closed up 1.3 percent as investors
speculated that a sale of Tim Brasil could be in the offing. Oi
shares jumped as much as 3.5 percent.
"If Tim had merged with GVT it would have been a much
tougher target," said Alex Pardellas, a telecom analyst at CGD
Securities in Rio de Janeiro. "Now it remains a natural
candidate for consolidation."
(1 US dollar = 0.7590 euro)
(Reporting by Brad Haynes in Sao Paulo, Tracy Rucinski in
Madrid, Gwenaelle Barzic in Paris and Lisa Jucca, Stefano
Rebaudo and Stephen Jewkes in Milan; Editing by Andrew Callus,
Tom Pfeiffer and Keiron Henderson)