Portugal Telecom and Oi have hit something of a road bump in their plans to merge into a new company, provisionally called CorpCo, after minority investors won a victory in their fight for more favourable terms.
Citing a preliminary court decision, Bloomberg said Brazilian securities regulator CVM has blocked Oi's controlling ownership group from participating in calculating the price of some assets involved in the transaction. Bloomberg noted that Oi and Portugal Telecom had planned to use asset prices approved by their biggest investors to help determine the distribution of shares in the new company.
If the decision is upheld, the current CEO of PT Portugal and Oi, Zeinal Bava, will have to sweeten the proposal for non-controlling investors
It was announced in October last year that Portugal Telecom will merge with its Brazilian affiliate Oi to create a new company based in Brazil.
As part of the merger, Oi will raise at least €2.3 billion ($3.1 billion) in fresh capital. Bava will also head up the new company, which is expected to be 38 per cent-owned by Portugal Telecom shareholders.
However, non-controlling investors had baulked at the dilution of their stock. The details of the merger are still on the drawing board, Pedro Galdi, the head strategist at brokerage firm SLW Corretora in Sao Paulo, told Bloomberg.
"There is a risk this operation won't happen," he said.
The transaction had been expected to close in the first half of 2014.
At the time of the announcement in October, Portugal Telecom said CorpCo will benefit from its enhanced scale in both Portugal and Brazil, while the merger is also expected to generate cost savings and additional revenue valued at about €1.8 billion.
The merger is conditional on approvals by the shareholders of Oi and PT, the successful completion of the capital increase, the successful completion of the liability management of the PT and Telemar Participações (Tpart) debt, as well as approvals by relevant regulatory authorities.
For more:
- see this Bloomberg article
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