Merger Reduces Brazil's Wireless Industry to 2 Players

Includes: TSP, TSU, VIV
by: Epsilon

Brazil's thriving wireless communications industry, until recently, included three giants, Vivo Participacoes (NYSE:VIV), Telecomunicacoes de Sao Paulo (NYSE:TSP), and TIM Participacoes (NYSE:TSU). I had recommended VIV in one of my smartphone apps, The Stock Advisor Elite, and purchased the stock myself.

I was, to say the least, shocked when I awoke on the morning of June 8th, checked my positions, and saw that VIV was trading just above $30.00. It had closed the previous session around $45.00. This apparent 30% drop had me a bit panicked, calling anyone and everyone and Google-ing things like, "VIV", "TSP", "merger", "delisting", etc.

I soon found that Vivo Participacoes agreed to a merger with Telecomunicacoes de Sao Paulo entitling current VIV shareholders to a 1.55 to 1 stock distribution. Stock holders of both VIV and TSP will now both use the stock symbol VIV.

Shareholders of Vivo Participacoes S.A. ("VIV") voted on April 27, 2011 and approved a proposed merger between VIV and Telecomunicacoes de Sao Paulo S.A.- TELESP ("TSP"). Pursuant to the terms of the Merger, each American Depositary Share (NYSE:ADS) of VIV outstanding immediately prior to the consummation of the Merger will be converted into the right to receive 1.55 ADSs of Telecomunicacoes de Sao Paulo S.A.-TELESP. The Merger will become automatically effective after the close of business on Tuesday, June 7, 2011.

In addition, effective with the opening of trading on Wednesday, June 8, 2011, the ADS symbol for Telecomunicacoes de Sao Paulo S.A.-TELESP will change from TSP to VIV. -June 7, 2011 CBOE press release

This merger consolidates Brazil's wireless communications industry down to TIM Participacoes and Telecomunicacoes de Sao Paulo, now VIV.

The industry has been booming since the beginning of 2009 and still looks strong. TIM Participacoes has remained stronger than both Telecomunicacoes de Sao Paulo and the former Vivo Participacoes, holding a current one-year return of 80.58%.

Since the beginning of 2011 analyst recommendations for TIM Participacoes have remained a "moderate buy" while the recommendations for Telecomunicacoes de Sao Paulo, now VIV, have steadily progressed from a "moderate sell" in January to a current "moderate buy".

This merger between Telecomunicacoes de Sao Paulo and Vivo Participacoes should stiffen competition for TIM Participacoes and, according to analysts, has increased the investment potential of the new Telecomunicacoes de Sao Paulo. I'm cautiously optimistic and very curious to see what will transpire in Brazil's wireless communications industry over the coming months.

Disclosure: I am long VIV.