Oi Investor Tanure Escalates Board Spat With Court Filingby
Magnate’s complaint challenges overlap with Pharol board
Tanure seeks board shakeup amid $20 billion bankruptcy case
Brazilian magnate Nelson Tanure, pushing for control of Oi SA, is challenging whether the beleaguered phone company’s largest shareholder Pharol SGPS SA can legally hold seats on the board, according to bankruptcy court proceedings.
Since Oi and Pharol own minority stakes in each other and share several board members, the companies are exerting control over each other and not giving voice to other shareholders, according to a petition filed by Tanure’s Societe Mondiale Fundo de Investimento em Acoes. The fund holds a stake of 6.6 percent in Oi, while Pharol has about 22 percent.
Pharol disputes Tanure’s interpretation of the law and said its board members always act in the best interest of the company. Oi declined to comment.
Tanure -- an investor who specializes in troubled companies and has shown a fondness for litigation -- is one of several parties seeking different ways to sway the outcome of the bankruptcy proceedings of Oi, which is struggling under about $20 billion in debt. The contenders include:
- A group of creditors advised by Moelis & Co. willing to inject $1 billion in capital in Oi, according to a person familiar with the matter. The idea would be to reduce the phone company’s net debt to about three times Ebitda, compared with 5.69 times at the end of March, the person said, asking not to be identified because the information isn’t public.
- Another group of shareholders, bondholders and investors in general coalescing around investment bank ACGM Inc., restructuring consultancy Integra Associados, and two longtime phone industry executives -- Joao Cox, the former head of America Movil SAB’s Brazilian unit, and Mario Cesar Araujo, former chief executive officer of Tim Participacoes SA, according to two people close to the negotiations. The group also intends to push for changes to Oi’s board, the people said.
- Hedge fund Aurelius Capital Management, which held talks with Tanure last weekend to eventually join forces to change the company’s board, according to a person close to the discussions. Oi has blamed Aurelius and other hedge funds for its inability to strike a deal with debtholders, forcing the phone carrier to seek protection from creditors, according to papers filed in Manhattan bankruptcy court.
Among the contenders, Tanure has taken one of the most public steps so far, nominating a slate of eight directors to replace six board members and two other directors who recently left. On Friday, Oi’s board referred Tanure’s request for a shareholder’s vote on his nominees to the bankruptcy judge.
Joao Mendes de Oliveira Castro, a lawyer for Societe Mondiale from the firm Galdino Coelho Mendes Advogados, said Pharol is seeking to stall for time and maintained that replacing the directors is vital. “You only invest in a bankrupt company if you can improve its management,” he said in a phone interview.
Pharol said Brazilian law only prohibits board members from voting when they have personal conflicts of interest, not when they may be representing the interests of a shareholder. In a statement, the Portuguese company noted its board members were elected last year with more than 88 percent of the vote. The directors are committed to Oi’s economic and financial recovery, Pharol said.
Oi’s board on Friday asked the judge presiding over its bankruptcy proceedings to decide on the merit of Societe Mondiale’s request. While Tanure could still call a shareholder meeting himself under Brazilian corporate regulations, he will wait for the judge to decide on the board’s referral, which should happen in the next week, Castro said. Tanure’s board nominees include Helio Costa, a former telecommunications minister and senator, and Demian Fiocca, a former CEO of Brazil’s development bank.
Tanure, who has made investments in oil, gas and telecommunications, wants to give Oi a fresh start by getting rid of Pharol’s influence, according to two people familiar with the matter. His next steps would be proposing a series of more than 10 spinoffs of digital services, such as mobile-payment provider Oi Paggo and pay-TV operator Oi TV, to persuade creditors to renegotiate debt, the people said.
Ownership of the debt-free spinoffs -- known as isolated productive units under Brazilian bankruptcy law -- would be split between the company and creditors, with control remaining with Oi, the people said.
Tanure would also negotiate how to replace the payment of at least 10 billion reais in regulatory fines with investments in Oi’s network, while fighting for regulatory changes to benefit the company, they said.
Tanure’s claim about Pharol’s board overlap with Oi has the support of Aurelio Valporto, the vice president of Brazil’s Minority Shareholders’ Association and a counselor at the National Association to Protect Minority Shareholders. Valporto is an Oi minority shareholder himself, with a stake of less than 1 percent.
“I have my reservations about Tanure, but in this specific case, he is totally right,’’ Valporto said in a phone interview. “It is an absurdity that Jose Mauro Cunha is Oi’s chairman and Pharol’s board member. He should declare himself blocked from voting in shareholders’ meetings.’’
A Pharol press representative said he couldn’t reach Cunha to provide comment.
While Pharol holds 27.5 percent of Oi’s voting shares, it has its voting power limited to 15 percent, according to the company’s articles of association. Morgan Stanley holds 7.6 percent of Oi’s voting shares, Societe Mondiale holds 7 percent, Brazil’s development bank has 5.7 percent and Pointstate Capital LP holds 5.2 percent, according to the company’s website and to recent filings.
Recent acquisitions by Tanure, Pointstate and other funds, like Marathon Asset Management, which raised its stake to 9.2 percent of the company’s non-voting shares, have caused steep gains on Oi’s stock price. Both voting and non-voting shares have more than doubled since the company’s filing for bankruptcy protection on June 20.
Aurelius is also buying Oi shares to bolster the fund’s position in the renegotiation talks, people with knowledge of the matter said.
Oi’s nonvoting shares rose 4.1 percent to 2.52 reais at 12:41 p.m. in Sao Paulo trading, while voting shares rose 3.6 percent to 2.90 reais.