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Cable MSO's Eyeing for GVT Assets

Zacks Equity Research

In an effort to increase their presence in Brazilian markets, cable Multi Service Operators (MSO) like DIRECTV (DTV), Liberty Global Inc. (LBTYA) and telecom giant America Movil (AMX) are all eyeing for Vivendi SA’s subsidiary unit Global Village Telecom (GVT) – a Brazilian telecom carrier.

These companies along with another private equity firm have already proposed for an initial bid of over €6 billion ($7.76 billion). Vivendi will review all the proposals and will take the final call on early January, next year.

We believe that the proceeds from the spin-off of Global Village Telecom’s asset will benefit Vivendi to reduce its debt.

GVT operates in 136 cities in Brazil and offers fixed telephone, broadband and Voice over Internet Protocol (VoIp) service to both business and normal customers. Hence, the acquisition of GVT by these MSO’s will not only gain market traction but will also help these companies to counter stiff competition that exist in the emerging Brazilian markets.

In the last nine months, GVT’s newly launched pay-TV service has gained 312,000 subscribers and also dominates 15.2% of Brazilian pay-TV market share.

So, DIRECTV, which is one of the leading satellite TV service providers in Brazil is considering GVT as a threat, which we believe may have led them to bid for the company.

Similarly, America Movil is rapidly expanding its pay-TV service across the Latin American countries with the acquisition of Pay-TV firm Net Servicos – the largest multi-service cable company in Latin America. Brazilian market happens to be one of the profitable markets for the company after Mexico.

Last year, America Movil acquired StarOne S.A. (a satellite services provider in Brazil). So, further acquisition of GVT’s business will not only consolidate its pay-TV business in the Brazilian market but will also help them to gain GVT’s 8.178 million fixed line subscribers.

We are currently maintaining our long-term Neutral recommendation on DirecTV, Liberty Global and America Movil.

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