Brazil Telecom Vivo Shares Rise On Telefonica Bid Report

SAO PAULO -(Dow Jones)- Shares in Brazil's leading wireless operator Vivo Participacoes rose sharply on the Sao Paulo Stock Exchange, or Bovespa, Tuesday morning, following a Financial Times report that Spain's Telefonica had made a EUR3 billion ($4 billion) bid for Portugal Telecom's stake in the company.

Vivo stocks were 4.0% higher at 10.35 Brazilian reals ($5.42) in early trade, while the benchmark Ibovespa index was down 0.5%.

Telefonica and Portugal Telecom are joint controllers of Vivo. Telefonca has been interested in buying out its partner for some time, although this is reportedly the first bid.

Telefonica CEO Cesar Alierta told the Financial Times that Telefonica had asked Portugal Telecom to respond to the offer by August. However, analysts said Portugal Telecom would likely want to formulate plans to move into another Brazilian asset before selling.

Portugal Telecom has made it clear that it wishes to remain in the Brazilian market.

Portugal Telecom has been linked with a possible merger between Tele Norte Leste Participacoes and Brasil Telecom Participacoes.

However, the creation of such a company remains very much on the chalkboard and would require modifications to Brazilian telecommunications rules.

The bid also raises the question of the fate of TIM Participacoes, Brazil's No.2 mobile phone operator, which is controlled by Telecom Italia.

Earlier this year, Telefonica bought an indirect stake in Telecom Italia, which could lead to it taking control of the company.

Alierta said Telefonica might look to integrate the infrastructure of Vivo and TIM and use the companies' combined bargaining power to lower equipment acquisition costs. But a merger of the two companies was not in the cards because local authorities wouldn't allow it, he said.

Local shares in TIM Participacoes were 0.1% lower at BRL6.70 in midmorning trade.

-By Alastair Stewart; Dow Jones Newswires; 5511 3145-1479; alastair.stewart@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 10th July 2007