- Pharol board member says directors must stay until 2018
- Judge hasn’t ruled on whether to allow shareholder meetings
Oi SA’s biggest shareholder, Pharol SGPS SA, believes efforts to remove its representatives from the board of the Brazilian telecommunications operator will be fruitless because they go against the company’s bylaws and lack legal support, according to a Pharol board member.
Pharol is gearing up for a fight against Oi’s second-biggest shareholder, Societe Mondiale Investimento em Acoes, which has called for two shareholder meetings on Sept. 8 to determine whether to oust Pharol’s representatives and consider legal action against them. The two groups are battling to determine the destiny of Oi, which filed for bankruptcy protection this year citing about $20 billion in debt.
Pharol negotiated last year for the right to have directors on Oi’s board through the first half of 2018 in exchange for limiting its voting power to 15 percent even though it holds a bigger stake in the company, said the Pharol board member. That agreement is enshrined in the company’s bylaws and can’t be changed, said the board member, who asked not to be identified since he was serving as a spokesman for Pharol and not as an individual.
At this point it isn’t clear whether the shareholder meetings will take place, since a bankruptcy judge has yet to rule on Societe Mondiale’s request.
The Pharol board member said Societe Mondiale’s request for a vote on a possible lawsuit against current Oi directors lacks legal foundation, since the individuals weren’t on Oi’s board at the time of the facts cited in the complaint.
In a statement, Societe Mondiale said Pharol’s representatives can be substituted at any time. The directors can be held accountable in legal action because they were working for Pharol at the time, Societe Mondiale said. The investment group said it’s confident that the Sept. 8 shareholder meetings can be held, since the company can operate normally without legal or regulatory intervention.
Oi and Pharol -- then known as Portugal Telecom -- agreed to merge in 2013 to create a carrier with 100 million customers to compete against Telefonica SA and Carlos Slim’s America Movil SAB. A year later, the companies renegotiated the transaction to give Portugal Telecom a smaller stake in the combined entity after it emerged that the Lisbon-based partner was holding almost $1 billion in debt defaulted on by Rioforte Investments SA, a unit of Grupo Espirito Santo.
Oi is working hard on a bankruptcy recovery plan that will be complex and extensive, the Pharol board member said. The plan would focus not only on debt but also on a reshaping of the company’s shareholder structure, dividend policy and operational goals, including sharp cost-cutting, he said.
Under bankruptcy protection, Oi has continued to struggle to hold on to wireless and internet customers. Pharol isn’t pleased with the company’s performance but thinks the phone carrier’s management is taking the right steps to make it operationally viable, the board member said.
Oi is the only big telecommunications operator in 1,800 Brazilian cities with more than 50,000 citizens, he said. It is losing ground in some of these cities to small competitors who buy Oi’s internet capacity in bulk and distribute it more cheaply -- an example of the company’s operational problems, he said.