• Exclusivity period started on Oct. 23, according to filing
  • Transaction is tied to condition of Oi merging with Tim

Oi SA agreed to hold exclusive talks with Russian billionaire Mikhail Fridman’s investment company, which is seeking to facilitate a merger of the Brazilian phone carrier with Telecom Italia SpA’s local unit.

Fridman’s company and Oi agreed for an exclusivity period of seven months for the talks, starting Oct. 23, the Rio de Janeiro-based carrier said in a regulatory filing Friday. Fridman’s holding company, LetterOne, said in a statement it and Oi are exploring proposals for structuring and financing options that would enable Oi to participate in consolidation.

Oi said Monday that LetterOne had made a proposal to contribute funds that are conditional upon the carrier agreeing to a merger with the Telecom Italia unit, Tim Participacoes SA. Telecom Italia is inclined to pursue a Brazil strategy on its own and has no plans to hold talks with Fridman, people familiar with the matter said this week.

“A reduction in Oi’s leverage is to be expected if the operation under discussion is completed," Oi said. “A potential union between Oi and Tim Participacoes would result in a more complete and well positioned operator, capable of competing with global players that are already in the country."

Under Fridman’s proposal, LetterOne would inject $4 billion into Oi, which had net debt of 34.6 billion reais ($9 billion) as of the end of June. Tim is the country’s second-largest wireless carrier and Oi is the No. 4.

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.

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