Portugal Telecom and Brazilian telco Oi have signed a memorandum of understanding laying out the terms of a long-mooted merger which could create synergies of US$2.5bn.
PT is Oi’s largest shareholder and the two operators have had a strategic alliance…
Portugal Telecom and Brazilian telco Oi have signed a memorandum of understanding laying out the terms of a long-mooted merger which could create synergies of US$2.5bn.
PT is Oi’s largest shareholder and the two operators have had a strategic alliance since 2010. This year Zeinal Bava moved from his position as CEO of the Portuguese incumbent to lead Oi.
Bava will head up the merged telco, known for now as Corpco. According to PT the new company would have pro forma revenues of US$16.9bn for 2012, pro forma EBITDA of US$5.8bn and operating cash flow of US$1.9bn. The combined company will have net debt of US$18.bn, based on figues from the end of June.
As part of the merger, Oi proposes to undertake a US$3.6bn cash capital increase to improve Corpco’s balance sheet flexibility. Investors in controlling shareholder Telemar Participacoes and BTG Pactual have already committed to put US$904m towards the rights issue.
Corpco will not have a controlling shareholder or group of controlling shareholders but instead will have a wide shareholder base over three different bourses: Brazil’s BM&FBovespa; the NYSE; and the Euronext.
Oi shareholders will receive one Corpco share for each of their common shares, and one Corpco share per 1.0857 preferred share. PT shareholders will receive one share in Corpco for each of their shares.
The combined company expects to benefit from significant operational and financial synergies and from increased scale.
Oi said that Corpco would have a stronger capital structure that would facilitate access to financial and capital resources.
PT shares jumped 15% this morning on the back of the news. For PT shareholders the deal moves some of their investment from sluggish Europe to fast-growing Brazil.
In its statement PT said: “The merger will consolidate the position of both companies as the leading operator for Portuguese-speaking countries with leadership positions in all markets where it operates.
The companies aim to complete the deal in H1 2014, following approval from shareholders and the regulators.
The deal will need the green light from Brazilian and Portuguese Antitrust Authorities, telecom regulators Anatel and Anacom, and securities and exchange commissions in Brazil, Portugal and the US.
The MOU will remain in place until October 2014.
