Portugal Telecom To Merge With Brazil's Oi Cell Company To Join Forces Against Carlos Slim

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Oi Portugal Telecom Merger?
Portugal Telecom and Oi have announced plans to merge.

Zeinal Bava is known in Brazil as the “Lionel Messi of telecommunications.” Bava, the chief executive of Portugal Telecom (ELI:PTC), the country’s biggest telecommunications company, is a three-time recipient of the Best CEO in European Telecommunications award, and his admirers place him in the same league as Messi, the world-famous soccer star.

Now, the business wiz is embarking on a new venture: the merger of his company with the biggest Brazilian cell carrier, Oi S.A. (BVMF:OIBR3), to create company worth 37.5 billion real (approximately $17 billion). The new group, which has temporarily adopted the name CorpCo, will be based in Rio de Janeiro and listed on the São Paulo, Lisbon and New York stock exchanges, according to a statement by Portugal Telecom.

The goal is to compete with Mexican tycoon Carlos Slim’s América Móvil (NYSE:AMX) in the Brazilian market, as Slim's América Móvil's Brazilian subsidiary has the largest share of the Brazilian cell phone market (25 percent). According to stats published by Adweek, Spanish mobile company Telefónica (MCE:TEF), via Vivo, its Brazilian brand, and TIM, a unit of Telecom Italia (BIT:TIT), have smaller shares of the market.

The new company would have a more robust financial footing then either of the two pre-merger companies, which would allow them to position themselves favorably in the Brazilian market in the event Telecom Italia decides to sell TIM Brazil, an option the Italian company has been considering as a way to reduce its debt.

Shareholders of Portugal Telecom, which owns 22 percent of Oi, will own 38.1 percent of the merged company. Oi is expected to increase its capital in the next year, and it hopes to raise up to 2.7 billion euros ($3.6 billion).

Bava’s vision is for a transatlantic company with a presence in Brazil, Portugal and Angola. If successful, Bava is looking at having more than 100 million customers and 12.5 billion euros in revenue ($17 billion). Oi leads the Brazilian market in land lines, but in cell service it's in fourth place, behind Claro, Vivo and TIM.

The Portuguese government has vowed not to interfere. The agreement is expected to be signed in early 2014. 

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