The Brazilian securities regulator CVM has created a setback for the merger of Brazil’s number four Oi and Portugal Telecom by ruling in favour of Oi’s minority shareholders. Despite this, the country’s regulator Cade has approved the deal without restrictions.
Following CVM’s decision, Oi’s controlling owners are now prevented from calculating the value of the units involved in the deal. The two operators were originally aiming to base the share distribution within the new entity on asset prices approved by their major investors.
Plans for the merger were unveiled in October, with the goal being to create the leading operator for the Portuguese-language market. The merged firms would have over 100 million subscribers between them. Portugal Telecom already has a majority share in Oi, and the two operators have been in an alliance since 2010.
However, the advantage has now tipped towards minority shareholders. Raphael Martins, a lawyer representing Oi investor Tempo Capital, stated: “This is a fundamental step in the merger, and they’re going to have to convince minority shareholders of the advantages of the operation, or it won’t happen.”
Oi CEO Zeinal Bava advocates the merger so that Oi can better compete with the larger Brazilian operators Claro (owned by America Movil), TIM (Telecom Italia) and Vivo (Telefonica). However, the CVM ruling could force him to adjust the terms of the deal to appease smaller shareholders. In addition, Oi will need to upgrade its network to become truly competitive.