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Oi CEO Says Simpler Structure After Merger Opens Up Options

Oi SA Chief Executive Officer Zeinal Bava
Oi SA Chief Executive Officer Zeinal Bava said, “We will become a growth company” with the merger. Photographer: Simon Dawson/Bloomberg

Oi SA’s merger with Portugal Telecom SGPS SA will result in simpler ownership structure for Brazil’s biggest phone company, giving it more options, Chief Executive Officer Zeinal Bava said.

“As we are today it is impossible for us to actually play any kind of consolidation game, so I think this is the first step that we need to put in place,” Bava said in an interview on Bloomberg Television’s “The Pulse.” The union “will certainly open up options for the company for the future.”

Oi, based in Rio de Janeiro, agreed to merge with Portugal Telecom yesterday to create a trans-Atlantic carrier whose 100 million customers make it more competitive against Telefonica SA and America Movil SAB. The merger will result in one class of stock, as opposed to a current combination of classes and a convoluted ownership structure through several holding firms.

Brazil’s wireless market may be facing a shakeup, with Telefonica pushing toward a potential sale of one of the carriers, Telecom Italia’s Tim Participacoes SA. Telefonica owns a minority stake in Telecom Italia and is increasing its influence in the company, agreeing last month to gradually buy out its co-investors in a holding company.

The deal with Portugal Telecom leaves Oi in a better position to bid for a stake in Tim, Andre Baggio, an analyst at JPMorgan, said in a note to clients yesterday.

Africa Assets

The combined Oi-Portugal Telecom, with almost $17 billion in annual sales, would be positioned to take advantage of the growth in Latin America as Europe’s phone market shrinks. The merger will generate cost savings and additional revenue valued at about 1.8 billion euros ($2.4 billion), helping the new company compete in the world’s fifth-biggest wireless market.

“It’s absolutely critical that we grow,” Bava said. “We will become a growth company” with the merger.

Bava, a former Portugal Telecom CEO, became the head of Oi in June while continuing to run the Portuguese carrier’s domestic operations. He will lead the enlarged company.

Portugal Telecom’s African assets won’t be for sale after the carriers merge even as the focus will be on the Brazilian and Portuguese operations, Bava said.

“Africa is an interesting footprint, it actually generates cash flow, businesses are profitable, but from a management standpoint clearly our focus is going to be Brazil and Portugal,” Bava said.

Moody’s Investors Service placed Portugal Telecom’s credit ratings on review for upgrade today, saying the combination would mitigate its “exposure to domestic Portuguese sovereign and macroeconomic risks” and it “would become part of a larger group with greater financial strength.”

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