Minority shareholders in Brazilian operator Brasil Telecom (BrT) have rejected a revised share swap offer with parent company Oi. A successful swap was key to finalising a merger of the two companies into a national champion providing fixed and mobile…
Minority shareholders in Brazilian operator Brasil Telecom (BrT) have rejected a revised share swap offer with parent company Oi. A successful swap was key to finalising a merger of the two companies into a national champion providing fixed and mobile services.
“Taking into account the rejection of the new ratios, the companies inform their shareholders that the process of integration … has been suspended for an indefinite period,” Oi and BrT said in a joint statement.
The minority shareholders turned down an offer of 0.2191 Class C preferred shares in Telemar Norte Leste (Oi) for each preferred Brasil Telecom share. They also spurned another offer by Oi, to exchange 0.3955 common shares in Telemar per common share in Brasil Telecom. This is a 10% reduction on a previous offer of 0.4388, made in March.
Because of this nay vote, BrT – which reportedly contributes some 50% of the combined group’s free cash flow and a third of its operational profits – will not become a fully controlled subsidiary of Oi, thereby restricting the parent company’s access to cash flow, a JP Morgan analyst has been cited saying.
One investor in both companies suggested to Reuters that one possible solution would be transferring dividends from BrT to Oi as intercompany loans, which would allow the integration process to continue.
Voting shares in Brasil Telecom fell a sharp 9.3% to BR16.68.
Oi first announced plans to take over BrT in late 2008, after getting the go-ahead from Brazilian president Luiz Inacio Lula da Silva to create a national champion able to compete with players owned by America Movil, Telefonica, Telecom Italia and Portugal Telecom.
Separately, Brazilian development bank BNDES has begun the process to auction off a 14.5% stake in Oi, as part of a reorganisation of the group.
State pension funds Petros and Funcef have been named as potential bidders as has Portugal Telecom, if it decides to sell its 50% stake in JV Brasilcel (Vivo) to Telefonica.