Portugal Telecom (PT +17.9%) shareholders have signed off on the $8.7B sale of Oi's (OIBR +20.1%) Portuguese assets to Altice.
With the sale approved, debt-laden Oi is expected (perhaps with the help of rivals) to turn its sights on acquiring part or all of TIM Participacoes (TSU +2.9%), thereby cutting the number of Brazilian mobile carriers to three.
Oi (OIBR +8.6%) is up 47% over the last three trading days, and merger partner Portugal Telecom (PT +10%) is up 17%. The gains for the beaten-down merger partners come ahead of the release of results (due today) of a vote by PT shareholders on the $8.7B sale of Oi's Portuguese assets to Altice.
There has been speculation the vote could be further delayed - it was previously set for Jan. 12 - as PT shareholders argue they need more information. Oi has denied claims from disgruntled PT shareholders and workers that the asset sale amounts to a breach of its merger terms with PT.
Analysts and lawyers have argued the Oi/PT merger, which has left PT with a 25.6% stake in the combined company, will ultimately remain intact even if the asset sale is rejected this week, given trying to unwind it would likely be very costly and produce years of litigation.
Portugal Telecom (PT +3.4%) is higher on a rough day for equities after Oi's (OIBR -3.6%) board signed off (following weeks of rumors) on the sale of Oi's Portuguese ops to Altice for $9.1B. Oi is heading in the opposite direction.
TIM Participacoes (TSU +0.7%), which many expect will now be targeted by Oi (and perhaps also other Brazilian mobile rivals), is up modestly.
Oi (OIBR -4.6%) and Portugal Telecom (PT -5.5%) are both off sharply following reports Altice is close to buying Oi's Portuguese ops (PT Portugal) for $9.2B. With M&A rumors having swirled for weeks, some investors may have been hoping for a higher offer.
Meanwhile, P-E firms Bain and Apax haven't thrown in the towel. Portuguese conglomerate Semapa disclosed this morning it would partner with Bain/Apax to bid for PT Portugal. Semapa says it would likely acquire a 5%-10% stake in a deal.
French cable giant Altice has agreed to buy Oi's (NYSE:OIBR) Portuguese ops for €7.4B ($9.2B), Reuters reports. Bloomberg reports Altice is "close to reaching an agreement," after having beaten out a bid from P-E firms Apax and Bain.
A Reuters source says Oi and Altice will soon announce they're entering three weeks of "exclusive talks and due diligence" to finalize the deal, which would serve to unravel Oi's merger with Portugal Telecom (NYSE:PT). PT's main asset is a minority stake in the combined company.
Selling the Portuguese assets could pave the way for Oi to merge with Brazilian rival TIM Participacoes (NYSE:TSU), or to partner with two other rivals - Telefonica's Vivo (NYSE:VIV) and America Movil's Claro - in acquiring and breaking up TIM. TIM parent Telecom Italia (NYSE:TI) has reportedly been weighing a deal with Oi.
Bloomberg reports Telecom Italia (TI -1.4%) will ask for board support tomorrow to "explore a potential transaction" between TIM Participacoes (TSU -0.8%) and Brazilian rival Oi (OIBR +5.7%). Both Oi and merger partner Portugal Telecom (PT +2.8%), whose main asset is a stake in the merged company, have rallied.
TI was rumored to be interested in Oi in September, but quickly responded by saying it's not in talks with the carrier.
Meanwhile, multiple bids have been made for control of Portugal Telecom, and a report has also surfaced that all three of TIM's rivals (including Oi) want to buy the company and break it up in order to consolidate Brazil's slow-growing mobile market.
Terra Peregrin, a holding company controlled by Isabel dos Santos (the daughter of Angola's President and Africa's wealthiest woman), has offered €1.35/share ($1.69/share) for a controlling stake in Portugal Telecom's (PT +7.2%) holding company, which in turn owns 25.7% of Portugal Telecom and Oi (OIBR +3.8%) post-merger.
The bid comes after France's Altice offered €7B ($8.8B) for PT's Portuguese assets (PT Portugal), thereby seeking to unravel the PT/Oi merger. For now, Oi is dismissing dos Santos' offer, stating it considers "inopportune any change in the previously agreed terms of definitive contracts."
Analyst Javier Borrachero thinks dos Santos' bid appears to be "an opportunistic offer simply to delay or hamper the potential sale of PT Portugal." He estimates Altice's offer values PT at €1.50/share ($1.88/share).
PT has rallied to $1.63. Oi is also up, but remains below $0.50.
Brazilian paper Folha de S. Paulo reports America Movil (AMX +1.6%), Telefonica's (TEF +1.2%) Vivo (VIV +4.9%), and Oi (OIBR +12.3%) have agreed in principle to pay R$31.5B ($13.1B) to acquire and break up TIM Participacoes (TSU +8.6%), Telecom Italia's (TI +2.9%) Brazilian unit.
The paper adds a formal offer will be made to TI shareholders. TI chairman Giuseppe Recchi says his firm hasn't yet received an offer. TIM's market cap is currently at $12.5B.
AMX would reportedly keep 40% of TIM, Telefonica 32%, and Oi 28%. Rumors of a joint bid have been around for weeks, as Brazilian carriers dealing with slowing growth and price wars bet consolidation will improve their fortunes.
Markets are responding well to the report. Oi merger partner Portugal Telecom (PT +8.9%), whose main asset is a stake in the combined company, is also rallying.
The FTreports P-E firms Bain and Apax Partners are weighing offers for Portugal Telecom (PT +3.7%). Both PT and merger partner Oi (OIBR +6.1%) are rallying in early trading.
French cable giant Altice has also been reported have interest in acquiring PT, and thus undoing the Oi merger. Shares of both companies have cratered this year, thanks in part to the Rioforte debt scandal.
Oi (OIBR -14.8%) says it has been contacted by several parties, including French cable giant Altice, about the purchase of Portugal Telecom's (PT -0.6%) operations. No formal offers have been received yet, nor has decision been made on a sale.
Bloomberg has already reported Altice wants to bid for PT, and thereby undo the Oi/PT merger. PT's minority stake in Oi currently serves as its main asset.
Oi is only a week removed from announcing CEO Zeinal Bava's resignation. The WSJ has reported PT's infamous $1.22B loan to an Espirito Santo International unit played a role.
Bloomberg reports Altice, the cable giant controlled by billionaire Patrick Drahi, is looking to acquire Portugal Telecom (PT +1.5%), and thereby unravel its merger with Oi (OIBR -2.5%).
Oi would have to give its blessing to any deal. Though the PT/Oi merger is technically incomplete, PT has transferred its local assets to Oi in exchange for a minority stake that now serves as its main asset.
Undoing the PT merger could pave the way for debt-laden Oi to carry out a merger with a Brazilian telecom peer, as the industry's players continue exploring ways to consolidate. Oi decided to stay out of a Brazilian 4G spectrum auction that raised $2.4B last week.
Earlier this year, Altice struck a $23B deal to buy French carrier SFR from Vivendi.
Oi (OIBR +9.6%) says it has hired i-bank BTG Pactual to help it explore options for buying Telecom Italia's (TI +4.3%) TIM Participacoes (TSU +6.2%) Brazilian mobile/wireline unit. Shares of all 3 companies are rallying, as are those of Portugal Telecom (PT +6%) and Telefonica's Brazilian unit (VIV +2.4%).
Given Oi's debt load (almost $20B) and potential antitrust concerns, many think a bid for TIM (would lower the number of Brazilian mobile carriers to 3) can only work if Oi partners with other carriers to acquire and break up TIM. America Movil (AMX +0.7%), which owns rival carrier Claro, is viewed as a potential partner.
Oi's disclosure comes as a bidding war between TI and Telefonica (TEF +0.8%) for Vivendi-owned (OTCPK:VIVHY) Brazilian wireline carrier GVT heats up. Reuters reports TI will make a €7B ($9.2B) bid for GVT that would give Vivendi a 15%-20% stake in TI; the WSJ reports Telefonica's board is meeting today to consider upping its €6.7B ($8.8B) GVT bid.
Telefonica (TEF -3.1%) and Brazilian subsidiary Vivo (VIV -7.5%) are off sharply following news Telefonica has bid $9B to acquire Brazilian wireline carrier GVT from Vivendi (OTCPK:VIVHY +1.9%), with plans to merge it with Vivo's mobile and wireline ops.
America Movil (AMX -2.5%), which had 68.8M Brazilian mobile subs and 34.5M wireline revenue-generating units at the end of Q2, is also off. As are Telecom Italia (TI -6%) and Brazilian unit TIM Participacoes (TSU -9.7%), and Oi (OIBR -6.7%) and merger partner Portugal Telecom (PT -5.1%).
Vivendi says it will study Telefonica's bid, but insists for now that "none of its subsidiaries are for sale." The conglomerate agreed to sell French carrier SFR in April.
A Vivo/GVT pairing could be a tougher rival for America Movil and Oi/PT, and would likely lead to a sale of Telefonica's stake in TI (as sought by Brazilian regulators). As it is, Telefonica has announced plans to cut its TI stake (currently at 14.8%) through a convertible debt offering.
There's speculation Vivendi could take Telefonica's remaining TI stake as part of its payment for GVT, but Nomura has its doubts. "It's hard to see why, from a Vivendi shareholder's perspective, they would want to have a minority position in Telecom Italia."
In order to salvage its planned merger with Oi (OIBR +13.1%), Portugal Telecom (PT +1.6%) has agreed to lower its stake in the merged company to 25.6% from a prior 39.6%, courtesy of a share transfer.
The restructuring stems from PT's purchase of $1.15B in debt issued by Rioforte, a subsidiary of PT shareholder Grupo Espirito Santo. The debt was defaulted on yesterday, heightening fears Rioforte will file for bankruptcy. Regulators are already probing the debt purchase.
The revised deal calls for PT to transfer 474M Oi common shares and 949M preferred shares to Oi, which will hold them in treasury. PT will have a 6-year option to buy them back, but the option's size will decline annually. Bloomberg notes Oi had 2.8B common shares and 5.7B preferred shares as of May.