Telefonica ups bid for Brazil GVT; Vivendi silent

SAO PAULO (Reuters) - Spanish telecommunications company Telefonica (TEF.MC) raised its offer for Brazilian rival GVT (GVTT3.SA) on Wednesday by 5.2 percent, seeking to trump a potential counteroffer by French media group Vivendi (VIV.PA) and seal a deal by the end of the month.

Management at Telefonica's Telesp (TLPP4.SA) unit raised the offer in order to "ensure the success of its bid and to reinforce its intention" to buy GVT, according to a regulatory filing. Under the new terms, the bid was upped to 50.50 reais a share, valuing the deal at $3.9 billion, from 48 reais a share, or $3.7 billion, previously.

The move sent GVT shares as much as 1.4 percent higher to 51.70 reais -- above the improved Telefonica offer. They later backtracked slightly and were trading 1.2 percent ahead at 51.60 reais.

The decision to raise the bid was based on GVT's "encouraging" third-quarter results, the filing said. GVT, which is based in the southern Brazilian city of Curitiba, reported net income of 57.2 million reais ($33 million) for the quarter, compared with a loss of 14.8 million reais a year earlier.

Faced with eroding margins and saddled with fines for poor service in Sao Paulo state, Telefonica needs GVT to revive bottom-line growth. The decision to boost the offer highlights the company's willingness to grab GVT and trump any additional offer by Vivendi or any other suitor, analysts said.

"Telefonica is sending a message to any bidder, that much more money will be needed to trump them," said Valder Nogueira, a telecommunications and technology analyst with Itau Securities in Sao Paulo.

Telefonica closed 0.06 percent higher in Madrid at 18.82 euros. Telesp was up 0.3 percent at 43.26 reais in afternoon trading in Sao Paulo.

Vivendi surged 2.2 percent to 18.99 euros.

BREAK-UP FEES?

On Tuesday, GVT shareholders unanimously agreed to remove a poison pill clause that was an obstacle to a merger by making takeover bids too costly. The waiver of the defense clause was set as a precondition by Telefonica and Vivendi to proceed with any takeover attempt.

Paris-based Vivendi, whose $3 billion friendly approach hasn't been formalized yet by the board, declined to comment.

Vivendi is still monitoring the GVT situation despite an apparent set-back to its bid, a source close to the matter told Reuters on Wednesday.

"We do not expect Vivendi to come back with a new offer, even if the possibility is not totally excluded," said Arnaud-Cyprien Nana Mvogo at French brokerage Aurel BGC.

It is still unclear how GVT's controlling shareholders, the Swarth Group and Global Village Telecom, will treat an agreement they signed with Vivendi on September 9 to sell Vivendi at least 20 percent of the outstanding shares.

"Is there any break-up fee, is there anything that could shed some light on their accord? We don't know," said Nogueira, the analyst in Sao Paulo.

At the time, Vivendi said it would seek to obtain control of at least 51 percent of GVT shares.

Most analysts doubt that Vivendi will seek to trump Telefonica's offer.

"Telefonica's improved offer is also good news for Vivendi because it will allow the French conglomerate not to pursue the deal and to eventually request break-up fees," Aurel's Nana Mvogo said.

To muscle out Telefonica, Vivendi would have to offer a minimum 53.02 reais a share. But the French giant has a long-standing policy of only buying assets that won't risk its investment-grade debt ratings and its policy of paying high dividends.

Telefonica has said it expects regulatory approval from the Brazilian telecommunications industry watchdog Anatel before an offer, initially set for November 19.

International Financing Review, a Thomson Reuters publication, reported on Wednesday that Telefonica's chief executive in Brazil, Antonio Carlos Valente, is urging Brazilian President Luiz Inacio Lula da Silva to lean on state-controlled bank Banco do Brasil to arrange financing for the GVT acquisition.

IFR said the financing package could reach 6 billion reais, without specifying how it obtained the information.

JPMorgan Chase (JPM.N) and Banco Santander (SAN.MC) are advising Telefonica. BNP Paribas is Vivendi's bank, while GVT hired Credit Suisse (CSGN.VX) and Goldman Sachs Group (GS.N) as advisers.

($1=1.728 reais)

(Additional reporting by Dominique Vidalon in Paris and Robert Hetz in Madrid; Editing by Dave Zimmerman)