Oi Declines Most on Ibovespa After Cost-Cutting CEO Resigns

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Oi SA, Brazil’s biggest landline carrier, fell the most on the benchmark equity index after Chief Executive Officer Zeinal Bava resigned.

The shares declined 8.4 percent to 1.52 reais at the close of trading in Sao Paulo, the biggest one-day drop since July. The stock is down 58 percent this year.

The departure of Bava, who led a merger with Portugal Telecom SGPS that could be completed as soon as this year, is negative for Oi, according to analysts at Banco Bradesco BBI SA and Credit Suisse Group AG. Bava, 48, cut costs as the company labored under $19 billion of debt and fell behind competitors on investments in Brazil.

“We had seen Mr. Bava as a key person behind the company’s plan to improve operations and deploy capital more efficiently, especially with his successful experience leading Portugal Telecom a few years ago,” Credit Suisse analysts led by Andrew T. Campbell wrote in a research note.

Oi’s debt load led Bava to cut the highest dividend yield in the global telecommunications industry last year, initiate the Portuguese merger and hire Banco BTG Pactual SA to act as a vehicle to buy Tim Participacoes SA. Bava also reduced annual investments and cut operating costs, Bradesco analysts led by Luis Azevedo wrote in a research note.

‘Early Stages’

“All of these initiatives were still in the early stages, without meaningful outcomes for the company’s results,” the Bradesco analysts wrote.

Oi’s controlling shareholders, which include the Jereissati and Andrade Gutierrez families, want to replace Bava with Global Village Telecom Holding SA CEO Amos Genish, Valor Economico newspaper reported yesterday. GVT, Vivendi SA’s local broadband provider, is being acquired by Telefonica SA, which owns the Vivo brand in Brazil.

Genish is unlikely to join Oi, a team of Itau BBA Securities analysts led by Susana Salaru wrote in a note today.

“Oi will look for a CEO with a political profile rather than an executive one,” the Itau analysts wrote.

Billionaire Patrick Drahi’s Altice SA cable holding company is interested in buying Portugal Telecom’s assets, a person familiar with the matter said this week.

“The sale of Portugal’s assets could be a catalyst for consolidation in Brazil, in our opinion, as it could raise funds for Oi to participate in an offer for Tim,” the Credit Suisse analysts wrote.

Bava’s resignation should accelerate Brazilian consolidation, BTIG LLC analyst Walt Piecyk said in an e-mailed response to questions. Tim, a unit of Telecom Italia SpA, is has retained Bradesco to negotiate an acquisition of Oi, according to people familiar with the matter.

“Now the only question is whether it’s Oi or Tim” that’s the purchaser, Piecyk wrote.