Portugal Telecom, SGPS, S.A. and Oi S.A. announce they have executed a
Memorandum of Understanding for the merger of their activities
RIO DE JANEIRO, Oct. 2, 2013
RIO DE JANEIRO, Oct. 2, 2013 /PRNewswire/ -- In compliance with the provisions
of art. 157,Section 4 of Law No. 6,404/76 (the "Brazilian Corporations Law")
and in accordance with CVM Instruction No. 358/02, Oi S.A. ("Oi", Bovespa:
OIBR3, OIBR4; NYSE: OIBR and OIBR.C) informs its shareholders and the market
in general that, on this date, Oi, Portugal Telecom SGPS S.A. ("Portugal
Telecom"), AG Telecom Participacoes S.A. ("AG"), LF Tel SA ("LF"), PASA
Participacoes S.A. ("PASA"), EDSP75 Participacoes S.A. ("EDSP 75"), Bratel
Brasil S.A. ("Bratel Brasil"), and also certain shareholders of Portugal
Telecom, in particular, Avistar, SGPS, S.A. and Nivalis Holding B.V. entered
into a Memorandum of Understanding ("Memorandum of Understanding") which
established the basis and principles that will govern the negotiations of a
potential transaction involving Portugal Telecom, Oi and some of their
controlling shareholders to form a combined entity ("CorpCo"), which will
unite the shareholders of Oi, Portugal Telecom and Telemar Participacoes S.A.
("TelPart") and combine the activities and businesses developed by Oi in
Brazil and Portugal Telecom in Portugal and Africa, with the intention of
consolidating the industrial alliance between Oi and Portugal Telecom that was
established in 2010 and developed since that date (the "Industrial Alliance")
which will permit the acceleration of the development of Oi in Brazil,
leverage and enhance the innovation capacity of Portugal Telecom and
crystallize the value of synergies (the "Transactions").
Highlights of the Transactions:
oThe Transactions are expected to enable CorpCo to generate operational and
financial synergies, with a net present value of approximately R$5.5
billion, and benefit from increased scale and from its leading positions
in the Portuguese and Brazilian markets.
oCorpCo will apply to be listed on the Novo Mercado segment of BM&FBOVESPA
S.A. – Bolsa de Valores, Mercadorias e Futuros ("BM&FBOVESPA"), the New
York Stock Exchange ("NYSE") and the NYSE Euronext Lisbon, with the aim of
increasing liquidity, diversifying of the shareholder base and adopting
the highest standards of corporate governance. CorpCo will have a widely
held shareholder base and will not have a controlling shareholder or group
of controlling shareholders.
oAs part of the Transactions, Oi is expected to undertake a share capital
increase in the minimum amount of R$13.1 billion, with the goal of
reaching R$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 R$7 billion, with the goal of reaching R$8 billion, is expected to be
in cash, with a view toward improving the balance sheet flexibility of
CorpCo. The current shareholders of TelPart and an investment vehicle
managed and run by Banco BTG Pactual S.A., will participate in the
offering by placing a subscription order of approximately R$2 billion.
oThe shares of CorpCo's will be listed on the Novo Mercado segment of the
BM&FBOVESPA, on the NYSE Euronext Lisbon and on the NYSE, and 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
each Oi shareholder shall be entitled to receive 1 new common share of
CorpCo for each 1.0857 Oi preferred shares. The exchange ratios have been
determined based on the VWAP of Oi common and preferred shares over the
period of the last 30 calendar days.
oBased on 2012 reported full year financials of Portugal Telecom and Oi,
CorpCo had pro forma revenues of R$37.5 billion, EBITDA of R$12.8 billion
and Operating Cash Flow of R$4.2 billion. Pro forma for the envisaged
R$8.0 billion capital increase, CorpCo's net debt was R$41.2 billion, as
of June 30, 2013
oThe Transactions will also involve the merger of Portugal Telecom into
CorpCo. As a result of such merger, the shareholders of Portugal Telecom
will receive common shares of CorpCo in number equal to the number of
these shares that will be held by Portugal Telecom immediately prior to
oZeinal Bava, CEO of Portugal Telecom from 2008 to 2013 and current CEO of
PT Portugal SGPS, S.A. ("PT Portugal") and of Oi, will be CEO of CorpCo
and its subsidiaries.
oThe closing of the Transactions will be conditional, inter alia, upon a
series of events and approvals, such as the approvals by the shareholders
of the companies involved, as well as the approvals by relevant regulatory
authorities. The closing of the Transactions is expected to occur in the
first half of 2014.
Description of the Transaction, Objectives and Benefits:
1. Objectives of the Transactions
The proposed Transactions involve a combination of activities and businesses
of Portugal Telecom and Oi, which will be held by a single company, CorpCo,
which may either be Telpart or another company constituted for this purpose.
The following principles will guide the Transaction:
(i) the formation of a single large multinational company based
(ii) the continuity of operations under the trademarks of Oi and
Portugal Telecomintheirrespective regions of operation, subject to unified
control and management by CorpCo;
(iii) the consolidation of the Industrial Alliance, enabling the
maximization of synergies,reduction of operational risks, optimization of
efficient investments and ensuring best practices;
(iv) the strengthening of the capital structure of the integrated
companies, facilitating their access to capital and financial resources;
(v) the consolidation of the shareholder bases of Telpart, Oi and
Portugal Telecom solely in common shares traded on the Novo Mercado segment of
the BM&FBOVESPA, the NYSE Euronext Lisbon and the NYSE;
(vi) the diffusion of CorpCo 's shareholder base, which, after the
implementation of the Transactions, will have no shareholder or group of
shareholders holding a majority of the capital;
(vii) the adoption of best corporate governance practices of the
Novo Mercado segment of theBM&FBOVESPA; and
(viii) the promotion of greater liquidity of the shares traded in
Creation of a multinational telecoms leader
The combination of Oi and Portugal Telecom will create a multinational telecom
operator with operations covering countries with a total population of 260
million people and more than 100 million clients. The combination of the
groups will aim to achieve significant economies of scale, maximize
operational synergies and add value for their shareholders, customers and
Commitment to highest corporate governance standards
The Transactions will be executed in order to consolidate the industrial
alliance established in 2010 between Oi and Portugal Telecom. As part of the
Transactions, CorpCo will apply to be listed on the Novo Mercado segment of
the BM&FBOVESPA and will implement best-in-class corporate governance
practices with one type and class of shares, with equal voting and dividend
rights for all shareholders.
Unified management team led by Zeinal Bava
Zeinal Bava, CEO of Portugal Telecom from 2008 to 2013 and the current CEO of
PT Portugal as well as CEO of Oi, will head CorpCo as its CEO and its
Improved time to market to crystalize growth opportunities in Brazil
The Transactions will allow CorpCo to leverage Oi's unique footprint in Brazil
and Portugal Telecom's experience in the Portuguese market, thus allowing it
to crystalize the growth opportunities in convergence and mobility in Brazil.
Commitment to financial discipline and value creation
CorpCo will place a strong focus on excellence in integration and operational
practices. A clear plan for action has been identified to integrate areas of
potential efficiency. This includes identified teams in place to capture
synergies and address existing operational challenges.
The Transactions may generate operational and financial synergies estimated to
have a net present value of approximately R$5.5 billion.
CorpCo is committed to its financial discipline to improve the flexibility of
its balance sheet in order to reduce financial risk and to underpin investment
in future growth areas.
Return of activities to positive FCF during 2015
As a result of the Transaction, we estimate that the combined activities of
the companies will achieve positive free cash flow generation in the second
half of 2015.
2. Principal Steps of the Transactions
The Transactions, in their current configuration, comprise, among other
things, the following corporate actions and steps that are subject to
refinement in the definitive agreements that will govern the Transactions:
2.1. Oi Capital Increase
Oi proposes to undertake a capital increase in the minimum amount, as of the
date of this Material Fact, of approximately R$13.1 billion, with the goal of
reaching R$14.1 billion, with the approximate amount to be paid in cash of a
minimum of R$7.0 billion, with the goal of reaching R$8.0 billion, and the
approximate amount to be paid with assets of R$6.1 billion, to be conducted
through the public issuance of common shares and preferred shares of Oi,
preferably in proportion to the current ratio between the issued and
outstanding common and preferred shares of Oi (the "Oi Capital Increase"), it
being agreed that, in order to respect the legal limit for division of capital
between voting and non-voting shares (i.e., minimum of one third of the shares
entitled to vote and maximum of two thirds of shares without voting rights),
the number of issued shares of each type may be adjusted. The Oi Capital
Increase will be subject to the full subscription of the minimum value of the
portion to be paid up in cash and will be subject to certain conditions, as
Portugal Telecom will enter into a commitment to subscribe and pay for the
portion of the Oi Capital. Increase to be paid for through the contribution of
assets (the "PT Assets"), through the contribution of the share interests in
companies that hold all of (i) the operating assets of Portugal Telecom,
except the equity interests directly or indirectly held in Oi and Contax
Participacoes S.A., and (ii) the liabilities of Portugal Telecom on the date
of contribution. Under the Brazilian Corporations Law, the PT Assets will be
identified and subject to valuation by a specialized company, whose valuation
report will be submitted to the General Meeting of shareholders of Oi.
Portugal Telecom estimates that the equity value of the PT Assets, upon
assessment for the purposes of the contribution to Oi, correspond to a value
within a range of values with a minimum of €1.9 billion and maximum of €2.1
billion, equivalent to R$5.8 billion and R$6.4 billion, respectively, based on
the current exchange rate of 3.0181 reais per euro. Portugal Telecom may elect
not to consummate the subscription of shares in the Oi Capital Increase if the
valuation report of the PT Assets values the PT Assets in euros at a value
lower than the estimated values above, based on the exchange rate of euros to
reais on the date of the valuation report.
Current shareholders of TelPart and an investment vehicle managed and run by
Banco BTG Pactual S.A. have agreed to participate in the offering by placing a
subscription order for shares of Oi of approximately R$2.0 billion.
The holders of common shares and preferred shares of Oi will have priority in
the subscription of the Oi Capital Increase. TelPart, AG and LF will assign
all of their respective priority rights to Portugal Telecom free of charge.
Once the subscription period for the Oi Capital Increase is closed, Portugal
Telecom may elect not to consummate the Transactions and all other corporate
transactions related to the Transactions if the percentage of the
participation of Portugal Telecom in CorpCo is equal to or less than 36.6% of
the total capital of CorpCo on a fully diluted basis after giving effect to
the merger of shares of Oi and CorpCo (as described below). Additionally,
TelPart may elect not to consummate the Transactions and all other corporate
transactions related to the Transactions if the percentage of the
participation of Portugal Telecom in CorpCo is greater than 39.6% of the total
capital of CorpCo on a fully diluted basis after giving effect to the merger
of shares of Oi and CorpCo.
The other conditions of the Oi Capital Increase will be set forth in the
definitive agreements that will govern the Transactions and will be disclosed
on a timely basis to our shareholders and the market in general.
2.2. Reorganization of TelPart, AG, LF and Bratel Brasil
As part of the Transaction, AG, LF and TelPart will be capitalized with the
resources needed to repay their indebtedness. In addition, AG and LF and their
intermediate holding companies will be reorganized in order to separate the
assets not related to their direct or indirect shareholding in Oi, so that AG,
LF, Bratel Brasil and TelPart will not have assets or liabilities (or will
have cash or cash equivalents equal to their respective liabilities), other
than: (i) shares of TelPart and Oi, in the case of AG; (ii) shares of TelPart
and Oi, in the case of LF; (iii) shares of AG, LF, TelPart and Oi, in the case
of Bratel Brasil;, and (iv) shares of Oi, held directly or indirectly, in the
case of TelPart.
Immediately after such capitalization, AG, LF and Bratel Brasil will merge
with and into TelPart. The shareholders of AG and LF will receive, by virtue
of the mergers set forth herein, the shares held by AG and LF in TelPart, in
accordance with the proportion of their respective shareholding interests in
the merged companies, after the adoption of other measures included in the
Transactions. The changes in shareholding interests in AG, LF and TelPart
arising from the operations under the Transactions and the mergers will not
result in the transfer of control of any of these companies.
2.3. Listing of CorpCo on the Novo Mercado Segment
CorpCo will apply to be listed on the Novo Mercado segment of the BM&FBOVESPA,
with the aim of strengthening its corporate governance through the adoption of
a new management structure and corporate governance regime.
CorpCo will have a Board of Directors consisting of eleven (11) members and
eleven (11) alternate members. Members of the Board of Directors of CorpCo to
be elected in anticipation of the listing of CorpCo on the Novo Mercado
segment and the Merger of Shares (as defined below) will have a term of three
(3) years from their election or until the General Meeting of the shareholders
of CorpCo to examine the financial statements of CorpCo for the third fiscal
year ending after the close of the year in which the Merger of Shares occurs,
whichever occurs last. In order to facilitate the integration of Oi and
Portugal Telecom, the Board of Directors of CorpCo shall initially consist of
the following members: Alexandre Jereissati Legey, Amilcar Morais Pires,
Fernando Magalhaes Portella, Fernando Marques dos Santos, Henrique Manuel
Fusco Granadeiro, Jose Maria Ricciardi, Jose Mauro Mettrau Carneiro da Cunha,
Nuno Rocha dos Santos de Almeida, Rafael Luis Mora Funes, Renato Torres de
Faria and Sergio Franklin Quintella.
Mr. Jose Mauro Carneiro da Cunha Mettrau and Henrique Manuel Fusco Granadeiro
will assume the positions of President and Vice President, respectively, of
the Board of Directors of CorpCo.
Immediately after the implementation of the corporate actions described above,
the Shareholders' Agreements of AG, LF and TelPart entered into or amended as
of January 25, 2011 will be terminated.
2.4. Merger of Shares and Portugal Telecom Merger
Merger of Shares (Incorporacao de Acoes) of Oi and CorpCo
Following the transactions described above, Oi and CorpCo will convene
shareholders meetings to consider a merger of shares, with a view to causing
Oi to become a wholly-owned subsidiary of CorpCo and to facilitate the
migration of the shareholder base of Oi to CorpCo (the "Merger of Shares"). At
the effective time of the Merger of Shares, CorpCo will have no assets or
liabilities (or will have cash equivalent equal to its liabilities), other
than the shares of Oi that it holds.
In the proposed Merger of Shares, holders of Oi common shares will receive one
new common share issued by CorpCo in exchange for each common share of Oi that
they hold, and holders of Oi preferred shares will receive one new common
share issued by CorpCo in exchange for each 1.0857 preferred share of Oi that
they hold. All ratios in the mergers that are part of the Transactions were
established based on market prices of the shares of Oi in a period of 30 days
and considering the shares of Oi that the companies involved in the operation
directly or indirectly hold, assuming that such companies will not hold any
liabilities or assets (or will have cash or cash equivalents equal to their
Holders of shares of Oi will not be entitled to withdrawal rights in the
proposed Merger of Shares under art. 137, II of the Brazilian Corporations
Law. Shareholders of CorpCo that dissent from the resolution approving the
proposed Merger of Shares will have the right to withdraw from CorpCo, subject
to the provisions of art. 137 of the Brazilian Corporations Law, at a value
per share equal to the per share book value. However, we do not expect that
the shareholders of CorpCo will exercise their withdrawal rights.
Pursuant to art. 137, Section 1 of the Brazilian Corporations Law, dissenting
shareholders who are entitled to withdrawal rights may only exercise such
rights in relation to the shares they hold continuously as of the end of the
trading day on October 1, 2013 to the date of exercise of the right of
withdrawal. Shares acquired on or after October 2, 2013 will not entitle their
holders to withdrawal rights with respect to the Merger of Shares. The
transfer of ownership of shares during the period set forth above (including
the holding of so-called "loaned" or "rented" shares) will result in the loss
to the respective shareholder of the ability to exercise withdrawal rights in
respect of the shares transferred.
Portugal Telecom Merger (Incorporacao)
Portugal Telecom will merge with and into CorpCo (the "Portugal Telecom
Merger") pursuant to art. 227 of the Brazilian Corporations Law. As a result
of the proposed Portugal Telecom Merger, Portugal Telecom's assets will be
transferred by operation of law to CorpCo. The Portugal Telecom Merger will be
submitted to the General Meeting of shareholders of CorpCo for consideration
in conjunction with the Merger of Shares. In addition, the Portugal Telecom
Merger will be submitted for consideration to the General Meeting of
shareholders of Portugal Telecom. At the time of the proposed Portugal Telecom
Merger, Portugal Telecom will have no assets or liabilities (or will have cash
and cash equivalents equal to its liabilities), other than shares of CorpCo.
In the proposed Portugal Telecom Merger, the shareholders of Portugal Telecom
will receive a number of common shares issued by CorpCo equal to the number of
common shares of CorpCo that will be held by Portugal Telecom immediately
prior to such merger.
3. Conditions to Implementation, Approvals and Other Information about
In addition to the conditions described above, the consummation of the
Transactions, as well as all other corporate transactions linked to the
Transactions, are subject to the implementation of various conditions,
including the approval of the transactions that may be agreed among the
parties to the Memorandum of Understanding by the competent governing bodies
of each such party, the obtaining of legal and regulatory authorizations,
consents of creditors and third parties, the valid and final consummation of
the Oi Capital Increase, and the agreement of the parties to the definitive
transaction agreements of the Transactions. Subject to the fulfillment of
conditions precedent that may be contractually established, all steps of the
Transactions will be undertaken as a single transaction to ensure their full
implementation, which will be an essential condition for consummation of the
Transactions and the conclusion of the Industrial Alliance.
The public offering of shares in the Oi Capital Increase is subject to due
registration with the CVM. Given that the shares of Portugal Telecom and Oi
are registered with the U.S. Securities and Exchange Commission ("SEC"), the
issuance of shares for cash in the Oi Capital Increase, the issuance of shares
by CorpCo to Oi's shareholders in the Merger of Shares, and the issuance of
shares by CorpCo to Portugal Telecom's shareholders in the Portugal Telecom
Merger will require registration with the SEC pursuant the U.S. Securities Act
of 1933, may be subject to securities registration requirements in other
jurisdictions. This Material Fact is not an offering document and does not
constitute an offer to sell or the solicitation of an offer to buy any
securities or a solicitation of any vote or approval in any jurisdiction in
which distribution of an offering document or such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of that jurisdiction.
The information required by CVM Instruction No. 319/99 will be disclosed in
the form of Material Facts by the time of the same date as the call notice of
the Oi shareholders meeting that will deliberate on the Merger of Shares.
The Memorandum of Understanding will remain in force until October 1, 2014 and
may be extended by the parties thereto.
Oi will keep its shareholders and the market informed of any subsequent
material events related to Transactions.
Rio de Janeiro, October 2, 2013.
Bayard de Paoli Gontijo
Investor Relations Officer
Additional Information and Where to Find It:
This communication is not an offering document and does not constitute an
offer to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval in any jurisdiction in which distribution
of an offering document or such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of that
This communication contains information with respect to (1) the proposed
capital increase and related public offering of common shares and preferred
shares by Oi, (2) the proposed merger of shares (incorporacao de acoes)
between CorpCo and Oi, and (3) the proposed merger (incorporacao) of Portugal
Telecom with and into CorpCo.
Oi may file a registration statement (including a prospectus) with the U.S.
Securities and Exchange Commission (the "SEC") for the offering of its common
shares and preferred shares to be issued in connection with its proposed
capital increase. Before you invest, you should read the prospectus in that
registration statement and other documents Oi has filed with the SEC for more
complete information about Oi and this offering. You may get these documents
for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively,
Oi will arrange to send you the prospectus after filing if you request it by
calling toll-free 1-855-672-2332.
In connection with the proposed merger of shares between CorpCo and Oi and the
proposed merger of Portugal Telecom with and into CorpCo, CorpCo plans to file
with the SEC (1)one or more registration statements on Form F-4, containing a
prospectus or prospectuses which will be mailed to shareholders of Oi and/or
Portugal Telecom, as applicable (other than non-U.S. persons as defined in
applicable rules of the SEC), and (2)other documents regarding this proposed
We urge investors and security holders to carefully read the relevant
prospectuses and other relevant materials when they become available as they
will contain important information about the proposed capital increase,
proposed merger of shares and proposed merger.
Investors and security holders will be able to obtain the documents filed with
the SEC regarding the proposed mergers, when available, free of charge on the
Commission's website at www.sec.govor from Telpart or Oi.
Special Note Regarding Forward-Looking Statements:
This communication contains certain forward-looking statements. Statements
that are not historical facts, including statements about our beliefs and
expectations, business strategies, future synergies and cost savings, future
costs and future liquidity are forward-looking statements. The words "will,"
"may," "should," "could," "anticipates," "intends," "believes," "estimates,"
"expects," "plans," "targets," "goal" and similar expressions, as they relate
to TelPart, Oi, Portugal Telecom or CorpCo, are intended to identify
forward-looking statements and are subject to a number of risks and
uncertainties. There is no guarantee that the expected events, tendencies or
expected results will actually occur. Such statements reflect the current
views of management of Oi and are subject to a number of risks and
uncertainties. These statements are based on many assumptions and factors,
including general economic and market conditions, industry conditions,
corporate approvals, operational factors and other factors. Any changes in
such assumptions or factors could cause actual results to differ materially
from current expectations. All forward-looking statements attributable to us,
or persons acting on our behalf, are expressly qualified in their entirety by
the cautionary statements set forth in this paragraph. Undue reliance should
not be placed on such statements. Forward-looking statements speak only for
the date they are made. Except as required under the U.S. federal securities
laws and the rules and regulations of the SEC or of regulatory authorities in
other applicable jurisdictions, we do not have any intention or obligation to
update or to publicly announce the results of any revisions to any of the
forward-looking statements to reflect actual results, future events or
developments, changes in assumptions or changes in other factors affecting the
forward-looking statements. You are advised, however, to consult any further
disclosures TelPart, Oi, Portugal Telecom or CorpCo makes on related subjects
in reports and communications TelPart, Oi, Portugal Telecom or CorpCo file
with the SEC.
Bayard de Paoli Gontijo
Investor Relations Officer
+55 21 3131-2918
SOURCE Oi S.A.
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