Oi SA, the smallest of Brazil’s four major wireless carriers, hired Banco BTG Pactual SA to work on an acquisition of stake of about $8 billion in larger Tim Participacoes SA as consolidation in the Latin American phone market heats up.
Oi asked BTG to act as a special purpose vehicle that can acquire assets on its behalf, “with the purpose of enabling a viable proposal for the acquisition of the shares of Tim” indirectly held by Telecom Italia SpA, Rio De Janeiro-based Oi said. Telecom Italia owns about 67 percent of Tim, which has a market value of more than $12 billion.
Oi and Tim shares surged in Sao Paulo. Brazil’s wireless carriers are pursuing combinations as intense competition weighs on call and data prices. With mobile-market leaders Telefonica Brasil SA and Tim seeking to bolster their positions through a purchase of broadband provider GVT from Vivendi SA, Oi is trying to make sure it doesn’t get dwarfed as the market consolidates.
A call to an Oi press officer wasn’t answered. Telecom Italia representatives didn’t respond to a message seeking comment. A Tim official declined to comment. Oi has a market value of about $5 billion, less than half the size of Tim, which is Brazil’s second-largest mobile carrier.
Oi surged 6.7 percent to 1.43 reais at 10:12 a.m. in Sao Paulo. Tim jumped 6.1 percent to 12.14 reais. Portugal Telecom SGPS SA, with which Oi is merging, rose 6.4 percent to 1.55 euros in Lisbon. Telecom Italia rose 3.7 percent in Milan, and Telefonica SA added 0.5 percent in Madrid.
Oi and Telefonica of Spain have been working on a plan to break up Tim and divide the assets among the country’s remaining carriers, people familiar with the matter said this year. With Telecom Italia against the move, Telefonica this month offered 6.7 billion euros ($8.8 billion) in cash and shares for GVT.
Telecom Italia itself is preparing a counterbid valued at as much as 7 billion euros to merge GVT with Tim and the Milan-based carrier’s board is meeting today to discuss its offer.
Any purchase of Tim would face regulatory scrutiny. Communications minister Paulo Bernardo said this month that more competition is better for consumers, and in February he said the government wouldn’t allow a single competitor to buy all of Tim.
Oi has a market share of 19 percent in Brazil, trailing the 29 percent of Telefonica, 27 percent of Tim and 25 percent of Claro, which is owned by Carlos Slim’s America Movil SAB.
Oi, which agreed to merge with Portugal Telecom last year, is also the most indebted telecommunications company in Brazil. Oi was rattled last month because of its merger partner’s exposure to a crisis at Espirito Santo group. Oi’s debt rating was cut to junk after Portugal Telecom faced losses on commercial paper it bought from a firm that has defaulted on the debt.
Telecom Italia losing out on GVT could make it easier for Oi to persuade the Italian carrier to sell. Telefonica winning GVT could prompt Telecom Italia to sell Tim because it would lack the scale to compete with bigger Internet providers, according to Berenberg Bank analyst Paul Marsch.
Oi also risks becoming a takeover target itself if it misses out on the next wireless auction in Brazil for airwaves enabling high-speed service. Analysts including Macquarie Group Ltd.’s Kevin Smithen have seen Oi as likely to skip the 4G spectrum auction because it’s hamstrung by debt. Tim has confirmed participation in the auction, and Oi hasn’t.
Chief Executive Officer Zeinal Bava said on Aug. 6 Oi was considering more asset disposals after raising almost $3 billion through sales since April 2013 to reduce debt.