Portugal Telecom and Brazilian operator Oi have signed a memorandum of understanding on a potential merger of the two operators. The new company would combine the activities of Oi in Brazil and Portugal Telecom in Portugal and Africa, consolidating the industrial alliance agreed by the operators in 2010.
The companies expect operational and financial synergies of approximately BRL 5.5 billion (EUR 1.8 billion) from the merger. The new company CorpCo would be listed both on the Bovespa exchange in Brazil and Euronext in Lisbon, helping to increase liquidity and diversify the shareholder base. No single shareholder or group of shareholders would have a controlling stake.
As part of the transaction, Oi is expected to undertake a share capital increase of a minimum BRL 13.1 billion, with the goal of reaching BRL 14.1 billion, due in part to the contribution of the operations and business of Portugal Telecom, and the remainder, in a minimum amount of BRL 7 billion, with the goal of reaching BRL 8 billion, is expected to be in cash. The current shareholders of its holding company TelPart and an investment vehicle managed and run by Banco BTG Pactual will participate in the offering by placing a subscription order of approximately BRL 2 billion.
The shares of Oi will be exchanged for shares of CorpCo, so that Oi becomes a wholly-owned subsidiary of CorpCo. Each Oi shareholder shall be entitled to receive one new common share of CorpCo for each Oi common share and one new common share of CorpCo for each 1.0857 Oi preferred shares.
CorpCo had pro forma revenues of BRL 37.5 billion in 2012, EBITDA of BRL 12.8 billion and operating cash flow of BRL 4.2 billion. Pro forma for the envisaged BRL 8.0 billion cash capital increase, CorpCo's net debt was BRL 41.2 billion at 30 June this year.
The transactions will also involve the merger of PT into CorpCo. Each PT share will be exchanged for the equivalent of EUR 2.2911 of CorpCo shares (to be issued at the price of Oi's capital increase) plus 0.6330 CorpCo shares. PT shareholders will hold 38.1 percent of the shares in the new company.
Zeinal Bava, CEO of Portugal Telecom from 2008 to 2013 and current CEO of PT Portugal and of Oi, will be CEO of CorpCo and its subsidiaries.
The closing of the transactions are conditional on approval from shareholders and the relevant regulatory authorities. The closing is expected to occur in the first half of 2014.
