In the aftermath of Portugal Telecom’s proposed merger with Oi, the focus has again turned towards how the deal might affect potential consolidation in Brazil’s mobile sector.
Already, the four-player market will likely be shaken-up…
In the aftermath of Portugal Telecom’s proposed merger with Oi, the focus has again turned towards how the deal might affect potential consolidation in Brazil’s mobile sector.
Already, the four-player market will likely be shaken-up following Telefonica’s move to control Telecom Italia in late September. That deal would lead to the Spanish incumbent in charge of Vivo and TIM Brasil, holding sway over more than half of Brazilian wireless subscribers.
Telecom Italia disposing of TIM seems like a foregone conclusion at this point but the fate of Brazil’s second largest mobile operator remains unclear.
It could be bought by a foreign operator looking to enter the market, or a four to three market consolidation play could happen with TIM being broken-up and split between Vivo, America Movil-owned Claro and perhaps Oi, according to industry watchers.
Speaking in a television interview Zeinal Bava, Oi’s CEO, said: “As we are today it is impossible for us to actually play any kind of consolidation game, so I think [the merger with PT] is the first step we need to put in place.”
The PT transaction will leave Oi with a single class of shares and a simplified ownership structure. The merged company will also be listed on the Novo Mercado, a section of the Brazilian bourse where shares are issued by companies adopting corporate governance practices that go beyond the bare legal minimum.
Bernstein Research analyst John Keith believes all these factors will leave the future Oi with a better chance of participating in a potential consolidation play – a scenario he sees as likely.
“I think there’s more than a 50% chance of [a TIM break-up] happening,” Keith said.
However, the combined Oi and PT would have a net debt to EBITDA ratio of 3.3x, which it may want to address before it looks at any M&A.
It is also expected the PT deal will improve the prospects of Oi, currently Brazil’s number four operator, preventing a Vivo/Claro duopoly in case of consolidation.
Guido Santos, an analyst at Portuguese investment bank Caixa BI, suggests that following the completion of the merger, the new company may pursue a further rights issue. However, he does not think the deal will close as quickly as PT’s and Oi’s managements would like to think – and not because regulators will take issue with the transaction.
“There are lots of regulators involved and the Brazilian ones often move slowly,” he said.
PT and Oi require approvals from the Brazilian and Portuguese Antitrust Authorities, telecom regulators Anatel and Anacom, and securities and exchange commissions in Brazil, Portugal and the US.
The companies advised that a deal should complete in Q1 2014, but Santos thinks this is optimistic.
Delays could mean a combined Oi/PT may not be able to actively participate in a consortium to buy TIM. However, even if it did miss the boat and Vivo and Claro went ahead alone, it is likely that it would receive some of TIM’s customers in the form of remedies from its two larger rivals.
