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Oi Investors Should Approve Portugal Deal, Glass Lewis Says

Oi SA’s shareholders should vote in favor of the Brazilian phone carrier’s merger with Portugal Telecom SGPS SA, advisory firm Glass Lewis & Co. 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. Glass Lewis provides advice on shareholder votes around the world to institutional investors that manage a combined $15 trillion in assets, making it so influential that U.S. officials have questioned whether it should be more closely regulated.

“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.

CVM Ruling

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. 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 weren’t immediately returned.

Glass Lewis, owned by the Ontario Teachers’ Pension Plan Board and Alberta Investment Management Corp., and its rival Institutional Shareholder Services Inc. agreed last year to follow a voluntary code of conduct, following a recommendation by the European Securities and Market Authority.

Demand for proxy research has grown as institutional investors’ portion of voting shares has risen to more than 50 percent in recent years, according to Conference Board research. Institutional investors, including pension and mutual funds, are the traditional clients of proxy advisers.

Press officials at ISS, owned by MSCI Inc., didn’t immediately respond to an e-mail asking if the firm has issued a recommendation on Oi’s vote.

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