Telefonica tries to ease Brazil pressure with lower Telecom Italia stake

jueves 17 de julio de 2014 13:26 GYT

By Danilo Masoni and Julien Toyer

MILAN/MADRID, July 17 (Reuters) - Telefonica's move to reduce its stake in Italian rival Telecom Italia may help the Spanish phone group appease regulators over competition concerns in Brazil and possibly accelerate consolidation in that market.

Telefonica controls Vivo, Brazil's leading mobile operator, and is the biggest shareholder in Telecom Italia , which owns Vivo's rival TIM Participacoes.

Brazil is a crucial market for Telefonica because it is its second-biggest generator of cash after its home market, and still has growth opportunities unlike relatively saturated European markets like Germany and Britain.

Brazilian watchdog CADE gave Telefonica 18 months to either sell its interest in Telecom Italia, or seek a new partner for Vivo in December following a deal with Italian investors which gave Telefonica nearly 15 percent of Telecom Italia.

On Thursday Telefonica launched the sale of a 750 million euro ($1 billion) bond exchangeable into Telecom Italia shares, reducing its stake to between 9.4 and 8.3 percent on conversion and loosening its grip as the group's largest shareholder.

It also sought to appease the Brazilian regulators by pulling its two representatives from Telecom Italia's board back in December to avoid conflicts of interest.

But it is the decision to partially exit its investment in Telecom Italia that has fuelled expectations the regulator might now soften its stance towards the Spanish group, people familiar with the situation and analysts said.

"I don't imagine CADE will look at this negatively, on the contrary," a senior Brazilian telecoms executive told Reuters.   Continuación...