Telecom Italia is evaluating the possible acquisition of Brazilian operator Oi in a move to challenge local rival Telefonica, reports Bloomberg, citing unnamed sources close to the talks. No approach has yet been made, but the Italian group is said to be speaking to advisors about using its local unit TIM Brasil to buy Oi, and thus strengthening its fixed-line network to sell broadband services after losing out to Telefonica in a bid to merge with another Brazilian operator, GVT.
A takeover of Oi would be a way of countering an initiative by rivals America Movil, Telefonica and Oi itself to launch a BRL 30 billion bid for TIM Brasil, which recent reports in the Brazilian press have indicated could occur by 30 September. Any bid for Oi would have to take on the Brazilian operator’s almost USD 20 billion in net debt, but TIM Brasil can afford a leveraged deal for Oi, partly financing it with its own stock, according to analysts cited in Bloomberg’s report.
While Telecom Italia’s net debt is more than triple its Ebitda, the Brazilian unit’s net debt is about 0.2 times Ebitda, giving it room to borrow for a potential deal. "We’ve always made clear that our financial flexibility is one of our strengths," said TIM Brasil CEO Rodrigo Abreu in a 11 September interview, adding that "we’re a company with a very low level of debt. We could make a move when an opportunity arises, as was the case when we made previous acquisitions."
Telecom Italia’s shares fell to their lowest level in five days on concerns about how the debt-laden Italian operator would finance any acquisition, with experts cited by Reuters adding that any deal would face regulatory hurdles since the combination of Oi and TIM Brasil would create a dominant player in some Brazilian regions. Shares in Portugal Telecom, which is in the process of merging with Oi, rose some 6 percent on the report.
