Oi Shares, Bonds Nosedive After Telecom Italia Rejects Proposal

  • LetterOne is abandoning efforts for a deal after 4 months
  • Mikhail Fridman's LetterOne still interested in Brazil

Oi SA shares and bonds fell to record lows after Telecom Italia SpA rejected Russian billionaire Mikhail Fridman’s plan to merge its Brazil unit with the struggling phone operator.

Fridman’s LetterOne Technology withdrew its proposal to help finance a merger between the Brazilian telecom carriers after four months of efforts to structure a deal, according to a statement Thursday. Telecom Italia’s Tim Participacoes SA doesn’t want to continue with discussions, LetterOne said.

Oi’s preferred shares dropped as much as 11 percent in Sao Paulo while its voting shares retreated almost 15 percent to a record low, Thursday’s biggest drop among 61 companies in the Ibovespa index. The company’s $1.5 billion of notes due 2022 dropped 34 percent to 30 cents on the dollar, the lowest value since they were issued in February 2012.

Oi had been counting on a merger with Tim -- and an investment from Fridman -- to help climb out from under a massive pile of debt and better compete in Brazil’s telecommunications market. As of earlier this month, the carrier had the greatest chance of defaulting in the next year among 25 Brazilian issuers with the biggest debt loads in foreign currency, according to data compiled by Bloomberg. This debt burden prevented Oi in 2014 from bidding on airwaves that will be crucial to help handle Brazilian’s growing mobile data demands.

“L1 Technology has been informed by Tim that –- whilst it thanks L1 Technology for its approach -- it does not wish to enter into further discussions, about the facilitation of a merger between Oi and Tim in Brazil,” LetterOne said in the statement.

Last October, Fridman offered to invest as much as $4 billion in Brazil’s Oi, reviving the prospects of a merger between the phone company and local competitor Tim. The proposal, received through investment bank BTG Pactual, was conditional upon Oi agreeing to a combination with Tim, the carrier controlled by Telecom Italia. Tim has a market value of about $3.9 billion. While Oi’s market capitalization is $410 million -- having slumped almost 16 percent this year -- including debt, the carrier’s enterprise value exceeds $11.9 billion, according to data compiled by Bloomberg.

Oi said in a separate filing that it will assess the impact on possibilities for consolidation in Brazil, and that it will continue with efforts to improve its operations.

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