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 The Securities and Exchanges Commission decision came after Oi's
chief executive officer, Zeinal Bava, breached a mandatory quiet
period ahead of the offer by making comment to the press.
The public offer of Oi shares is a key operation for the success of
the merger of the two telecom companies.
Oi said in a statement that it would clarify the situation as soon
as possible before the commission to try to resolve any irregularity
so that the share offer could go ahead.
The planned combination of Oi and Portugal Telecom had taken an
important step forward earlier on Thursday when shareholders of the
Brazilian carrier approved a capital increase that will facilitate
the merger.
Oi shareholders approved an increase of up to 14 billion reais ($6.1
billion) at a meeting in Rio de Janeiro. While analysts expected
minority shareholders to challenge the plan, the vote to pass both
the proposal and an asset appraisal of Portugal Telecom took only
eight minutes.
Hours later, councilors at telecommunications industry watchdog
Anatel gave the go-ahead for the merger, tying it up to the
nonexistence of tax debts by both companies and their controlling
groups. Antitrust watchdog Cade had approved the deal in January.
Both decisions help inject hope among Oi's controlling shareholders
and Brazil's government that the combination will give the combined
company more clout to compete inside Brazil with bigger rivals such
as Spain's Telefonica SA <TEF.MC>, Telecom Italia SpA's TIM
Participações SA <TIMP3.SA> and Mexico's America Movil SAB <AMXL.MX>.
Despite the favorable outlook for the transaction, investors still
remain skeptical. Preferred shares of Oi <OIBR4.SA> shed 0.3
percent, while common shares tumbled 3.9 percent. Shares of Portugal
Telecom were down 1.8 percent on Thursday.
Oi and Portugal Telecom have discussed how to tie up since the
latter bought a 25 percent stake in the Brazilian company three
years ago, sources with knowledge of the situation told Reuters on
Wednesday. The market value of both companies has fallen more than
50 percent over the past three years, a sign that investors bet that
a merger would take place sooner or later.
The company resulting from the merger, known as CorpCo, will have
more than 100 million subscribers and $20 billion in annual revenue.
Bava, the 48-year-old engineer who in June became Oi's CEO after a
five-year stint as head of Portugal Telecom, will lead it.
The merger is in some ways akin to throwing a lifeline to Portugal
Telecom, which has suffered in recent years along with a flagging
Portuguese economy. Shareholders of the Lisbon-based company on
Thursday approved the use of the company's assets for Oi's capital
increase at a separate shareholder meeting.
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NEXT STEP
The next step for the deal is the April 16 pricing of Oi's share
offering, which has firm commitments from large shareholders
including Portugal Telecom, pension funds, Brazil's Jereissati
family, construction firm Andrade Gutierrez SA, as well as
investment banking giant Grupo BTG Pactual SA.
Yet, the offering poses some headwinds, analysts such as Andre
Baggio at JPMorgan Securities said. While controlling shareholders
have already committed 2 billion reais to the plan and a group of 14
banks led by BTG Pactual <BBTG11.SA> guaranteed the subscription of
up to 6 billion reais in new stock, the conditions for their
participation remained unknown.
Sources at both Brazilian watchdogs told Reuters when the merger was
announced in October that passage would be smooth, because the deal
was structured as a corporate restructuring rather than a change of
control.
Oi was born after Tele Norte Leste Participações SA's purchase in
2008 of Brasil Telecom Participações SA — a move sponsored by
then-President Luiz Inacio Lula da Silva to face growing competition
from Telefonica and Mexican billionaire Carlos Slim's America Movil.
Portugal Telecom entered Oi's controlling bloc after exiting Vivo, a
mobile carrier now fully owned by Telefonica, in 2010.
Bava, the architect of Portugal Telecom's investment in Oi, is
tasked with fixing Oi's complex shareholder structure, cut debt and
figure out how the new company can cope with the demands of a
Brazilian market that may be ripe for consolidation.
Under terms of the deal, Oi would sell up new stock and use proceeds
to cut debt. Portugal Telecom would contribute its assets, excluding
its stake in Oi, and own 38 percent of the new company. Oi would
have as much as 30 percent of CorpCo and other investors such as BTG
Pactual and a number of Brazilian pension funds would own the rest.
Each Oi common share would be exchanged for 1 share in CorpCo and
each Oi preferred share would be swapped for 0.9211 CorpCo stock.
Each Portugal Telecom share would 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.
(Reporting by Luciana Bruno, Leonardo Goy and Alberto Alerigi Jr.;
writing by Guillermo Parra-Bernal; editing by Jeffrey Benkoe, Andrew
Hay and Richard Chang)
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