The art of war and takeover- A case study

Earlier this year Portuguese number 2 telecom and internet operator Sonaecom put its bid to acquire its larger telecom rival and incumbent Portugal Telecom (PT) to become unrivaled leader at home. Neighbor Spain’s telecom incumbent Telefonica holds around 10% in PT and has a 50:50 JV with PT in prized Brazilian numero uno mobile company Vivo. Telefonica too mulled with the idea of bidding for PT to ultimately get a full hold of Vivo, but later it dropped the idea as it would not have desired to carry the largesse of declining wired telephony in Portugal.

Now with Sonaecom again reiterating its bid for PT, Telefonica is believed to be helping the former to seal the deal by selling its 10% share in PT to Sonaecom. I wondered as to why it did so, and then I remembered a deal in the US telecom market that happened during early 2005. Verizon (then no. 1 in the US telecom market) bid for MCI and Latin American telephone tycoon Carlos Slim agreed to sell his 13% stake in MCI to VZ at a price lower than VZ’s revised upward bid for MCI, to help VZ seal the deal. Later after a year (during early 2006) VZ agreed to sell its stakes in Venezuelan incumbent telephone company CANTV and other telecom assets in Latin America to Mr Slim.

Telefonica is also following Slim’s footstep (has to be as both are fighting for the LatAm dominancy). I believe Telefonica is helping Sonaecom to takeover PT to ultimately bargain for PT’s 50% stake in Vivo, later from it. Vivo is the undisputed mobile telephony leader in Brazil with 33% market share ahead of 25% and 22% held by Italy’s Telecom Italia Mobile (TIM) and Carlos Slim’s owned America Movil’s Claro respectively.