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Portugal Telecom sees no major obstacles to Oi merger, on schedule
February 7, 2014 / 11:17 AM / 4 years ago

Portugal Telecom sees no major obstacles to Oi merger, on schedule

An antenna is seen on top of the Portugal Telecom (PT) headquarters in Lisbon February 28, 2013.Jose Manuel Ribeiro

LISBON (Reuters) - Portugal Telecom PTC.LS is confident its planned merger with Brazil's Oi (OIBR3.SA) will be completed in the second quarter and does not see any major obstacles from minority shareholders or regulators, PT CEO Henrique Granadeiro said on Friday.

"The transaction is progressing as planned and we are working to complete it during the second quarter," he told Reuters. "We currently do not foresee issues that would materially impact the timetable."

PT and Oi in October announced plans to combine their operations to form a new company with more than 100 million subscribers, almost $19 billion in annual revenue and more clout to compete in Brazil with bigger global rivals such as Spain's Telefonica SA (TEF.MC) or Mexico's America Movil (AMXL.MX).

He said that despite a preliminary objection by Brazil's securities market watchdog CVM staff to allowing Oi controlling shareholder TPar to vote the PT assets valuation report, he expected the CVM board to give the go-ahead.

PT and Oi hope to use asset valuations approved by their biggest investors to determine how shares will be distributed in the new merged company, known as CorpCo, but minority holders have been pushing for more favorable terms.

"The board of the CVM still needs to provide a formal opinion on the matter and we are hopeful that they will concur with our views... We remain confident that we will secure the approvals necessary to complete the transaction," Granadeiro said.

He said a debt reorganization plan, for which PT has requested consent from holders of 1.15 billion euros in notes that would involve an Oi guarantee and other changes, will be a key step in the merger process and should be completed in March.

"We expect the bondholders to support our proposal. The rating agencies have confirmed in the past that the proposed transaction will have a positive impact on PT's standalone credit profile, and we are offering an attractive consent fee to secure the support of our bondholders."

While he played down most risk factors that could jeopardize the merger, one issue on which PT "faces challenges" and which has to be resolved under the merger's liability management plan is 246 million euros owed by Angola's largest telecoms company Unitel in back dividends for 2011 and 2012.

He admitted that "our efforts to achieve an acceptable solution may prove unsuccessful", which could negatively impact the value of its investment in Angola, but still expected a favorable resolution at least to the back dividends problem if not to future dividends.

Another potential risk in Angola is PT's partnership with private equity firm Helios, who together own a 25 percent stake in Unitel, as Helios has the right to sell its stake due to the merger.

Such an outcome, he said, "could add to the complexity of executing the proposed combination of Oi and PT" and possibly increase consolidated leverage if the new company has to fund the purchase from Helios with additional debt.

Writing By Andrei Khalip, editing by Shrikesh Laxmidas

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