Portugal Blocks Telefonica's Bid to Control Brazil's Vivo

Telefonica (TEF) got outmaneuvered by the Portuguese government Wednesday in its bid to acquire a controlling stake in Brazil's largest cell phone operator Vivo, according to an Associated Press report.

Telefonica, a major Spanish telecom operator, and Portugal Telecom (PT) each own a 50% stake in Brasilcel, a holding company that owns a 60% stake in Vivo. Last May, Telefonica made an unsolicited offer to Portugal Telecom to buy out its stake in Brasilcel for 5.7 billion euros ($7 billion), which was immediately rejected.

That offer was later raised to 6.5 billion euros ($8 billion), which Portugal Telecom' investors were set to vote on at a shareholders meeting Wednesday. But hours before the meeting, Telefonica swooped in with an even higher bid of 7.15 billion euros ($8.8 billion), according to the report.

After shareholders voted yes, the Portuguese government stepped in with a veto. The government used its special "golden share" voting rights, which gives it the final decision on any strategic decisions involving Portugal Telecom. Apparently, the government sided with Portugal Telecom's board of directors, who had previously rejected Telefonica's offer, arguing that Vivo was a major part of its long-term growth engine.

With the government stepping into the deal, it now appears that investors in Portugal Telecom won't get an immediate payback from the Vivo investment.