(Adds company comments in paragraphs 7-10)
By Guillermo Parra-Bernal and Alberto Alerigi
SAO PAULO, July 15 Some large shareholders in
Grupo Oi SA could take partner Portugal Telecom SA
to court if a debt investment made by the latter ends
up in default, a step that could delay the companies' planned
merger, a source close to the transaction said on Tuesday.
Shareholders of Rio de Janeiro-based Oi want to push
Portugal Telecom to agree to have a smaller stake in CorpCo, as
the company resulting from the merger is known, depending on the
outcome of the debt negotiations later on Tuesday, said the
source, who requested anonymity because of the sensitivity of
The merger, however, is not at risk because "both companies
need each other," the source added. The combination is touted as
a chance to strengthen Oi's corporate governance after years of
bickering between minority and controlling shareholders.
Going to court would be a "last resort" for the Oi
shareholders, who were not informed of Portugal Telecom's 897
million euro ($1.2 billion) investment in Rioforte, a vehicle
controlled by Portugal's Espírito Santo family, the source said.
The family owns about 10 percent of Portugal Telecom. Oi is
controlled by Portugal Telecom and by other Brazilian companies
including Andrade Gutierrez SA, the Jereissati family, a number
of state-controlled pension funds and development bank BNDES.
If the debt is not repaid and Portugal Telecom has to write
off the investment, the shareholders in Oi would have to sue in
order "not to be seen as negligent or lenient over a serious
corporate governance flaw," the source added.
Rioforte is preparing to file for creditor protection with a
court in Luxembourg in hopes of preventing an uncontrolled fire
sale of assets, sources with knowledge of the situation told
Reuters on Tuesday. Those same sources declined to comment on
how such a filing would impact the repayment of Rioforte's debt
to Portugal Telecom, adding that negotiations on the matter were
Oi, BNDES, Portugal Telecom, Andrade Gutierrez and the
Jereissatis did not have a comment.
Common shares of Oi shed 2.4 percent to 1.62
reais, nears record lows touched earlier this week. Oi's
preferred shares were unchanged at 1.56 reais, while Portugal
Telecom slipped 2.1 percent to 1.83 euros.
Portugal Telecom's two debt investments in Rioforte were
equal to roughly 40 percent of the telecom firm's market value.
Brazilian newspaper Valor Econômico reported on Tuesday
that, in the event of a default, Oi shareholders would push to
reduce Portugal Telecom's stake in CorpCo to 20 percent from the
current 37 percent, and could sue if Portugal Telecom resisted.
Valor, without citing sources, said shareholders, executives
and lawyers of both firms were monitoring whether the Espírito
Santo family-controlled investment vehicle would repay the 847
million euros of the investment falling due later in the day.
According to Valor, it is still unclear how proceedings will
unfold if the debt payment is partially or totally rolled over
for payment at a later date.
(Additional reporting by Reese Ewing and Brad Haynes; Editing
by James Dalgleish)