Adviser urges investors in Brazil's Oi to endorse merger with Portugal Telecom
RIO DE JANEIRO, March 13
RIO DE JANEIRO, March 13 (Reuters) - An independent financial advisory firm will recommend that shareholders of Brazilian telecommunications company Grupo Oi SA approve a proposed merger with Portugal Telecom SA SGPS , documents obtained by Reuters showed on Thursday, even as the deal is stirring intense controversy.
Glass Lewis & Co, a New York-based firm hired to issue an independent opinion for minority shareholders, said the benefits of a combination between the companies outweigh the costs and current limitations in disclosure. The document will be presented at a March 27 shareholder meeting called to discuss and vote on the transaction.
The firm recommended minority shareholders, many of which have voiced concerns that the deal is dilutive for them, to endorse a capital increase of 8 billion reais ($3.4 billion) that will facilitate the combination, and approve a valuation of both companies' assets carried out by Banco Santander SA .
"Based on these factors and the unanimous support of the board, we believe shareholders should support the contemplated combination," the document said.
Oi's largest shareholders, most of them local groups and pension funds as well as Portugal Telecom, hope the move will give the struggling group more clout to compete inside Brazil with bigger rivals such as Spain's Telefonica SA, Telecom Italia SpA's TIM Participações SA and Mexico's America Movil SAB.
Portugal Telecom and Oi have been discussing how to tie up since the former bought 25 percent of Oi in 2010. The market value of both companies has fallen more than half over the past three years, a sign that investors bet that a merger would take place sooner or later.
'CLEAR AND COMPELLING'
The tie-up has been attacked by many Oi shareholders who say the capital hike favors Oi's largest shareholders, including Portugal Telecom, at the expense of minorities, the document said. Brazil's securities industry watchdog CVM recently ruled that dissenting shareholders would be allowed to withdraw and even be bought out if the merger proceeds.
According to the Glass Lewis document, Oi failed to provide particularly substantive disclosure of the process by which its board of directors "determined the proposed transaction reasonably represented the most attractive strategic alternative available to Oi and its shareholders."
Still, "all other things equal, we believe the strategic case for the transaction is clear and compelling," the document said.
The new company, known as CorpCo, will be based in Rio de Janeiro, where Oi is headquartered. Zeinal Bava, the 47-year-old engineer who in June became chief executive at Oi after a five-year stint as head of Portugal Telecom, will lead it.
CorpCo is targeting cost savings of 5.5 billion reais, but many analysts have shown scepticism over whether that sum can be achieved.
Under terms of the deal, Oi will sell up to $3.1 billion in new stock and use proceeds to cut debt. Portugal Telecom will in turn contribute its assets, excluding its stake in Oi, and own 38 percent of CorpCo. Oi will have as much as 30 percent of the new company and other investors such as investment bank Grupo BTG Pactual SA and a number of Brazilian pension funds will own the rest.
Each Oi common share will be exchanged for 1 share in CorpCo, and each Oi preferred share will be swapped for 0.9211 CorpCo stock. Each Portugal Telecom share will be the equivalent of 2.2911 euros in CorpCo shares to be issued at the price of the capital hike, plus 0.6330 CorpCo shares.
- Study of smoking cancer patients fuels e-cigarette debate
- Islamic State closes in on Syrian town, refugees flood into Turkey |
- Exclusive: Iran seeks give and take on Islamic State militants, nuclear program
- Alibaba IPO ranks as world's biggest after additional shares sold
- Accused White House intruder is decorated Iraq war veteran