(Adds America Movil declines to comment)
By Luciana Bruno and Leila Abboud
RIO DE JANEIRO/PARIS Aug 27 Brazil's Grupo Oi
SA unveiled plans on Wednesday to take over Telecom
Italia's local mobile unit, in a move sources said was aimed at
breaking up the country's second-biggest wireless carrier and
upstaging merger bids by foreign rivals.
Oi said it hired Brazilian investment bank Grupo BTG Pactual
SA to explore alternatives to acquire Telecom Italia
SpA's 67 percent stake in TIM Participações SA
, the country's second biggest wireless carrier.
Oi's plan is to bring in Mexico's America Movil SAB de CV
and Spain's Telefonica SA in a deal to split
TIM three ways, easing the financial and regulatory burdens of
consolidation, according to two sources who asked not to be
named due to the sensitivity of the deal.
The move adds a new twist to the bidding war for Vivendi
SA's Brazilian broadband unit GVT, which both Telecom
Italia and Spain's Telefonica SA are pursuing to
bolster their mobile businesses in the country.
Telecom Italia said in a statement that it knew nothing
about the move, was not involved in the plans, and saw TIM as a
America Movil declined to comment.
When asked last month if he would be interested in TIM
assets, America Movil's billionaire owner, Carlos Slim, told
Reuters: "Let's not speculate about possibilities. I said before
that America Movil's priority is organic growth. But if there
are opportunities or circumstances to consolidate something
that's good for the development of the company, like any other
company, it does it."
Telecom giants are jostling for position in Brazil as they
struggle to add customers, invest in high-speed networks and
protect profits in a stagnant economy. Those pressures have
added to growing expectations of potential mergers, following a
trend sweeping markets from Austria to Ireland.
Oi has been sidelined in the consolidation, stuck with a
fourth-place wireless carrier and 46 billion reais ($20 billion)
in debt after a rocky merger with Portugal Telecom SGPS SA
To overcome financial and regulatory hurdles, Oi turned to
BTG Pactual, a deep-pocketed shareholder that put up 2 billion
reais to make sure the Portugal Telecom deal went through, two
sources with knowledge of the deal said.
Oi asked BTG Pactual to act as "merchant commissioner,"
creating a special investment vehicle of the kind that has been
used to break up companies among multiple buyers.
The Telecom Italia board, which met for nearly nine hours on
the GVT bid on Wednesday, commented on Oi's move afterwards,
saying Telecom Italia "is completely extraneous to the Oi SA
initiative about which it knows nothing."
A separate statement detailing its offer for GVT is expected
on Thursday morning.
Telefonica was also set to meet on Wednesday to discuss its
bid. The deals are estimated to be worth 7 billion euros ($9
billion). Vivendi is expected to hold a board meeting on
Oi, Telefonica and America Movil have been discussing a
potential joint bid for TIM since late last year, according to
several sources. America Movil owns Brazil's No. 3 wireless
carrier and its biggest broadband operator.
"We would expect Telefonica and America Movil to join Oi, as
BTG Pactual works as the intermediary and figures out a way for
them to buy TIM," said Mauricio Fernandes, an analyst with Bank
of America Merrill Lynch.
Breaking up TIM would likely reduce the financial burden for
rivals and facilitate regulatory approval, said Antonio Espirito
Santo, an analyst with Banco Espirito Santo in Sao Paulo. That
scenario would also trigger significant cost savings for Oi,
with an acquisition in the region of 35 percent helping save
about 12 billion reais, he added.
Any move to consolidate Brazil's mobile market would face
close scrutiny from antitrust regulators, who have expressed
concern that fewer players will weaken competition.
Capital spending increases and diminishing returns have
driven telecom mergers around the world, but in Brazil issues
surrounding Oi's merger with Portugal Telecom and the bidding
war for GVT have muddied the waters.
Preferred shares of Oi soared more than 5 percent in Sao
Paulo, while the price for the company's 5.75 percent bond due
in February 2022 dropped 2.5 cents on the U.S.
dollar to 94.75 cents - indicating that investors expect Oi to
fund any deal with more debt.
Oi's move shook up a key day for its European rivals.
Sources told Reuters that Telecom Italia's bid for GVT would
value the company at roughly 7 billion euros and leave Vivendi
with a 15 to 20 percent stake in the Italian group.
Telefonica's board was also set to meet on Wednesday to
discuss improving its bid for GVT as it seeks to head off
Telecom Italia, according to a person familiar with the matter.
"It will be higher than (Telefonica's original) 6.7 billion
euros, but it won't be as much as 8 billion euros," the source
said, referring to a figure cited in newspaper reports.
Telefonica declined comment. Vivendi is expected to discuss
the GVT offers at a meeting before it publishes second-quarter
results on Thursday.
Telecom Italia shares were up 3.2 percent at the end of
Wednesday, while Vivendi's were up 1.2 percent. Telefonica was
up 0.04 percent.
Telecom Italia executives have said Brazil was core to its
strategy but it would examine any bids it received for TIM.
"This places Telecom Italia under even more pressure in
Brazil, as the company is apparently mulling the possibility of
a counteroffer on GVT and is now faced with a bid on its local
subsidiary," Espirito Santo said.
The current mobile pecking order in Brazil has Telefonica
with a 28.7 percent market share at the end of the first
quarter, Telecom Italia's TIM with 27 percent, America Movil
with 25.1 percent and Oi with 18.5 percent.
In broadband, America Movil held 30 percent of the market,
Oi 27.7 percent, Telefonica 18.4 percent, and GVT had 12.7
percent. Telecom Italia's lack of a fixed network has left it
with less than one percent share.
($1 = 0.759 euro)
(Additional reporting by Brad Haynes and Guillermo Parra-Bernal
in Sao Paulo; Stephen Eisenhammer in Rio de Janeiro; Tomas
Sarmiento in Mexico City; Robert Hetz and Elisabeth O'Leary in
Madrid; Stephen Jewkes, Stefano Rebaudo and Lisa Jucca in Milan;
Editing by David Holmes, Mark Potter and Sonya Hepinstall)