Minority shareholders could upset Oi-PT merger

13 Jan 2014

The proposed merger between Brazilian wireless operator Oi SA and its major investor Portugal Telecom (PT) has run into difficulties following a move by minority shareholders in Oi to improve the terms of the deal. According to a report from Bloomberg, Brazilian securities regulator CVM has said that Oi’s controlling ownership group cannot participate in calculating the price of some assets involved in the transaction, meaning that the telco will have to sweeten the deal for smaller investors or risk seeing it derailed altogether.

Under the current merger proposals, Oi was hoping to raise at least BRL7 billion (USD2.9 billion) through the sale of new shares, with the proceeds used to pay off debts at Oi’s controlling shareholder Telemar Participacoes. PT was to participate in the capital increase by contributing all of its assets, allowing itself to be absorbed in the new company; the Portuguese firm values itself at between USD2.6 billion-USD2.9 billion. Under the terms of deal, while controlling holders would have their debts paid off through the merger transaction, minority shareholders would see their stakes diluted but receive no payout in compensation. Oi may now have to move to buy out minority shareholders, with financial analysts predicting that this could cost the company as much as BRL950 million.

Brazil, Oi, Pharol (formerly Portugal Telecom SGPS [PT SGPS])