Telefonica's decision to sweeten its offer for Brazilian telecom rival GVT dealt a major blow to Vivendi's plans to acquire the carrier, sources close to the transaction told Reuters on Friday, suggesting the French media giant may walk away from the deal.

But an existing agreement between GVT's controlling shareholders, the Swarth Group and Global Village Telecom, to tender at least 20 percent of their outstanding shares to Vivendi could present the French company with a good exit strategy, said the sources, who asked not to be named because a transaction has yet to be completed.

Telefonica raised its offer for GVT by 5.2 percent on Nov. 4, seeking to trump a potential Vivendi counteroffer and seal a deal before the end of the month.

Under the terms of the counteroffer, the bid was upped to 50.50 reais a share, valuing the deal at about $3.9 billion, from 48 reais a share, or $3.7 billion, previously.

Vivendi would have to offer a minimum 53.02 reais a share, or 5 percent premium to the initial bid, to muscle out Telefonica. A decision to withdraw from the deal would be in line with Vivendi Chief Executive Jean-Bernard Levy's long-standing policies of only buying assets that do not risk the company's investment-grade debt ratings and of paying high dividends.

The sources declined to elaborate on the terms of the accord with GVT's controlling shareholders.

A Vivendi counteroffer would risk sparking a bidding war for GVT, something Levy has always pledged to avoid. Vivendi's $3 billion friendly approach had yet to be formalized.

Shares of GVT, based in the southern Brazilian city of Curitiba, rallied after Telefonica's Wednesday announcement.

GVT's common stock has advanced 3.3 percent since Wednesday, hitting an all-time-high of 53.35 reais on Friday.

Analysts, including Valder Nogueira of Itau Securities, have recently brought up the accord as a possible roadblock to successful completion of the deal by Telefonica.

Vivendi's relationship with Swarth and Global Village is very good, the sources said.

Telesp, Telefonica's unit in Brazil, is determined to win swift regulatory approval for the deal before a scheduled tender offer on Nov. 19.

Faced with eroding margins and saddled with fines for poor service in its home Sao Paulo state market, Telefonica needs GVT to revive bottom-line growth. The decision to boost the offer highlighted the company's willingness to block rivals, analysts said.

Telefonica's decision to raise the bid was based on GVT's encouraging third-quarter results, the Spanish company said. GVT reported net income of 57.2 million reais ($33 million) for the quarter, compared with a loss of 14.8 million reais a year earlier.

GVT's focus on high-usage and high-margin customers has long been seen as attractive to bigger rivals eager to expand their geographic reach in the country.

GVT's state-of-the-art telecom network has a backbone of more than 15,000 kms (10,000 miles), allowing it to serve high-end residential and corporate clients, Barclays Capital said in a September report.

Vivendi closed down 0.2 percent to 19.29 euros on Friday. Telefonica also fell 0.2 percent to 19.155 euros.

In recent weeks, investment firms including Nomura International, Morgan Stanley's Morgan Stanley Uruguay and Eton Park made purchases of GVT stock that, combined, amount to a 19.9 percent stake in the Brazilian company.

(Additional reporting by Cesar Bianconi in Sao Paulo; Editing by Todd Benson, Leslie Gevirtz and Bernard Orr)

($1=1.72 reais)