Vivendi on Thursday entered into exclusive talks to sell its Brazilian unit GVT to Telefonica in a deal worth €7.5 billion, dealing a blow to rival suitor Telecom Italia.

Telefonica intends to merge GVT with its Brazilian mobile operation Vivo. In return, Vivendi will receive a 12% stake in the combined entity and the option to take an 8.3% stake in Telecom Italia, currently held by Telefonica. It will also receive €4.7 billion in cash, an improvement on the €3.9 billion offered as part of Telefonica's first GVT bid, lodged earlier in August.

"The Telefonica offer best meets the group's strategic and financial objectives," said Vivendi, in a statement.

Vivendi's decision is a setback for Telecom Italia, which competes with Telefonica in Brazil via TIM Brasil.

Earlier on Thursday the Italian incumbent made an offer for GVT worth €7 billion. It consisted of €1.7 billion in cash and a 15% stake in the merged GVT/TIM entity, plus a 20% stake in Telecom Italia.

However, opting for Telefonica's offer is more in line with Vivendi's strategy of divesting telecom assets and focusing on the TV and music industries.

Indeed, GVT is the French conglomerate's last remaining wholly-owned telecom subsidiary following the agreement to sell its French mobile unit SFR to Numericable in April, and the closure of its deal to sell Morocco's Maroc Telecom to Etisalat in May.

"Vivendi begins a new phase in its development to become an integrated industrial group focused on media and content," said Vivendi.

As for Telefonica, the addition of GVT will strengthen Vivo's position by augmenting the mobile business with fixed broadband and TV assets. According to local consultancy Teleco, the combination of GVT's first-half revenues of 2.7 billion reais with Vivo's BRL17.2 billion would make the latter Brazil's biggest telco by revenues (see last week's Friday Review for an in-depth look at the ramifications for the country's telecoms market).

Vivendi picking Telefonica will ramp up the pressure on TIM. Had it been successful in its pursuit of GVT, TIM would have been able to mount a much stronger challenge to Vivo and America