Telecom Italia Said to Snub Fridman's $4 Billion Oi Offer

  • Billionaire Fridman's funding conditional upon Oi-Tim merger
  • Telecom Italia said to have no plans to negotiate with Fridman

Telecom Italia SpA is inclined to pursue a Brazil strategy on its own and has no plans to hold talks with Mikhail Fridman after the Russian billionaire made an offer valued at as much as $4 billion to prop up a local carrier, according to people familiar with the matter.

Italy’s biggest phone company continues to review its options for its Brazil unit, Tim Participacoes SA, including a potential deal with rival Oi SA, said the people, who asked not to be identified because the deliberations are confidential. Oi said Monday that Fridman’s holding company, LetterOne, had made a proposal to contribute funds that are conditional upon the carrier agreeing to a merger with Tim.

Telecom Italia owns two-thirds of Tim, Brazil’s second-largest wireless provider, whose shares jumped 5.9 percent on Monday to 8.57 reais in Sao Paulo for a market value of $5.3 billion. Oi, down almost 80 percent this year, climbed 8.7 percent to 2.12 reais, valuing the No. 4 wireless carrier at about $684 million. The company had net debt of 34.6 billion reais ($8.9 billion) as of end of June.

Oi’s debt pile has over the past two years been an obstacle to a consolidation in Latin America’s largest telecommunications market. Oi hired BTG Pactual last year to explore an acquisition of Tim, while Tim in turn had examined a takeover of Oi to increase market share and better compete with Telefonica Brasil SA and America Movil SAB’s Claro. Tim and Oi together have about 44 percent of the local wireless market, according to data from the Anatel regulator.

While Brazil’s economy is shrinking, its inflation quickening and the currency weakening, its mobile carriers are more optimistic, with market leader Telefonica Brasil recently predicting that smartphone penetration and mobile data use will grow by at least 10 percent this year in the country of more than 200 million people.

Telecom Italia was little changed at 1.16 euros at 9:13 a.m. in Milan. The company referred requests for comment to a statement by Rio de Janeiro-based Tim, which said on Monday that it isn’t in negotiations with LetterOne or Oi about mergers and acquisitions. A LetterOne spokesman in London declined to comment. Oi’s board is scheduled to discuss LetterOne’s proposal on Wednesday, Brazilian newspaper Estado reported.

Russian billionaire Mikhail Fridman.
Russian billionaire Mikhail Fridman.
Photographer: Konstantin Zavrazhin/Getty Images

When asked about a potential merger between Tim and Oi in May, Telecom Italia Chief Executive Officer Marco Patuano said: “It’s not true that the study of Brazil” options had been put aside.

"Brazil’s recession favors a consolidation in a mature industry like telecommunications, and the real’s devaluation is helping foreign players," said Andrea Giuricin, a professor at Milan’s Bicocca University who specializes in media and telecommunication. A carrier such as AT&T Inc., however, would make be a better partner for Telecom Italia in executing a deal with Oi, he said.

Fridman and other investors received $14 billion from selling a stake in oil producer TNK-BP to state-run rival OAO Rosneft two years ago and agreed to channel the proceeds into energy and telecommunications businesses globally. The billionaire and partner Alexey Kuzmichev became U.K. tax residents this year after President Vladimir Putin requested that investors pay Russian taxes on profits they receive on foreign-registered holding companies, Forbes Russia reported in April.

The 51-year-old owns Russia’s second-largest retailer X5 Retail Group NV and controls wireless operator VimpelCom Ltd., which operates in 14 countries in former Soviet republics, Africa and Asia. VimpelCom agreed to merge its Italian operations with those of CK Hutchison Holdings Ltd. earlier this year.

"Having substantial funds to invest, LetterOne is interested in large markets where opportunities for consolidation exist," said Sergey Libin, an analyst at ZAO Raiffeisenbank. "Emerging markets like Brazil better fit this goal, while developed markets may be more difficult to enter."

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