By Matthew Cowley and Rogerio Jelmayer
SÃO PAULO--The board of directors at Brazil's largest phone
company Oi SA has approved a financial appraisal of Portugal
Telecom SGPS SA as the two companies seek to move forward with a
merger questioned by some minority shareholders.
Banco Santander (Brasil) SA estimated that Portugal Telecom is
worth EUR1.75 billion, which is in line with the estimate used in
the initial Oct. 1 merger agreement, Oi's directors said in minutes
of a board meeting held Wednesday.
The value of the PT assets will be used to calculate how much
its shareholders will own of the new company. As part of the
merger, Oi expects to increase its capital by about 14.1 billion
Brazilian reais ($5.9 billion), of which at least 7 billion
Brazilian reais and as much as 8 billion reais will be in fresh
cash and the remainder will be from the inclusion of the PT
assets.
The merger is expected to close in the first half of this year
and would create a new Brazil-based company with annual revenues of
around 38 billion Brazilian reais ($16.2 billion) and more than 100
million subscribers across three continents. It would also
streamline a complicated shareholding structure, and leave PT
shareholders with about 38% of the new company once the merger has
been completed, according to merger documents.
One board member, Antonio Cardoso dos Santos, voted against the
appraisal, according to the minutes.
The board of directors has called a shareholder meeting to
examine the appraisal March 27.
The original Oct. 1 valuation has been criticized by some
minority shareholders of Oi who claim the Portuguese company is
worth less, and that as a result Portugal Telecom shareholders are
benefiting unduly. They also claim Oi's majority shareholders stand
to gain more from the transaction because the new company will take
over responsibility for paying back their debts.
The minority shareholders won some preliminary support from
Brazil's securities and exchange regulator, the CVM. In January,
one of the CVM's departments recommended that Oi's majority
shareholders abstain from voting on the financial appraisal to
avoid a conflict of interest.
Domenica Noronha of Rio de Janeiro-based asset manager Tempo
Capital Gestão de Recursos--and a minority shareholder of Oi--said
she will await publication of the full financial appraisal before
deciding what course of action to take. Nonetheless, she said the
decision by the majority shareholders on the board of directors to
vote to approve the appraisal already goes against the CVM
department's advice.
In Lisbon, shares in PT ended down 2.71% at 3.23 euros Thursday,
according to the Lisbon stock exchange's website. The firm's shares
traded at 3.40 euros the day before the merger.
Oi's shares traded in São Paulo ended 0.3% at BRL3.77, in line
with broader market. The shares traded at BRL4.22 the day before
the deal was announced in October.
"Despite the expectation that the minority shareholders will
challenge [the appraisal], I think the operation will go through,"
said Alexandre Montes, a telecommunications analyst at Lopes Filho
Consultores in Rio de Janeiro. "This is a question of survival for
Oi, there's no plan B. The company is highly indebted and is
falling behind the competition."
Write to Matthew Cowley at matthew.cowley@wsj.com and Rogerio
Jelmayer at rogerio.jelmayer@wsj.com
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