Oi Shareholders Should Approve Portugal Deal, Glass Lewis Says

Oi SA (OIBR4)’s shareholders should vote in favor of the Brazilian phone carrier’s merger with Portugal Telecom SGPS SA, advisory firm Glass Lewis recommended, saying the deal sufficiently protects minority investors.

While Oi could disclose more helpful information to shareholders, such as how its board determined the merger was its best option, the transaction appears to be reasonable, Glass Lewis said in a document obtained by Bloomberg News. The combined company will have greater purchasing power and more diverse sources of revenue, said the firm, which helps large investors make decisions in shareholder votes.

The recommendation is a victory for Oi after minority shareholders such as Tempo Capital criticized the deal, which includes a capital increase of at least 7 billion reais ($3 billion), hurting the value of their stakes. Brazilian securities regulator CVM sided with the smaller investors in a preliminary ruling in January, saying that Oi’s controlling ownership group can’t participate in calculating the price of some assets involved in the transaction.

“It is certainly worth acknowledging the projected public offering and share swap stands to be considerably dilutive to minority Oi shareholders,” Glass Lewis said. “Nevertheless, we note such placement structures are not uncommon, particularly in those instances that require a minimum level of proceeds, as is the case here.”

In Oi’s case, the capital increase is especially critical because it will need funding to compete and because it will have a “substantial” amount of debt, Glass Lewis said.

Oi’s vote is scheduled for March 27, the same day Portugal Telecom investors will decide on the transaction.

Press officials for Rio de Janeiro-based Oi and Lisbon-based Portugal Telecom declined to comment. E-mails to Glass Lewis’s press office after normal business hours weren’t immediately returned.

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison

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