UPDATE:Telefonica Says Bid For PT's Stake In Vivo Has Expired

Telefonica SA (TEF, TEF.MC) said early Saturday it wouldn't extend its EUR7.15 billion offer for Portugal Telecom SGPS SA's (PT, PTC.LB) stake in Brazil's Vivo Participacoes SA (VIV, VIVO4.BR) after a drawn-out bidding process.

"Portugal Telecom's board of directors didn't accept the bid within the timeframe and it is now terminated," Telefonica said in a filing it prepared for the Spanish market regulator.

Analysts have called Telefonica's offer, which was sweetened twice, generous and it is almost as high as Portugal Telecom's market capitalization of EUR9.1 billion.

Earlier Saturday, Portugal Telecom asked Telefonica to extend the offer period from July 16 to July 28, a request Telefonica rejected.

A Telefonica spokesman declined to comment Saturday about the company's next move, but the company's executives have said Telefonica could block Portugal Telecom's dividends from Vivo or Telefonica could take Portugal Telecom to an arbitration court to resolve the dispute over Vivo.

In June, 74% of Portugal Telecom's shareholders voted to accept Telefonica's offer, but the Portuguese government blocked the sale using a golden share that allows the government to veto sales in key companies.

The European Court of Justice has said the golden share veto power is illegal.

PT and Telefonica have been locked for months in a power struggle over Vivo, which they control through Brasilcel, a joint venture that owns 60% of the company.

Both PT and Telefonica see Vivo as key to their future growth prospects as they face declining revenue in their mature home markets and are suffering the lingering impact of a severe recession.

They are increasingly dependent on emerging economies like Brazil, where a young population and low mobile penetration rates makes it easier to pick up new wireless and Internet customers. Brazil has about 183 million cellphone accounts, and Vivo is the market leader with a market share of 30%.

Company Web site: http://www.telefonica.com

-By Jason Sinclair, Dow Jones Newswires; 34 913958127; [e-mail]