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 (Reuters) - 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:


* 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.


* 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.


* 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.