| RIO DE JANEIRO, March 13
RIO DE JANEIRO, March 13 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
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
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.