Oi Said to Raise $3.7 Billion in Share Sale for Portugal Merger

Apr 28, 2014 11:00 pm ET

April 29 (Bloomberg) -- Oi SA, Brazil’s biggest phone carrier, raised 8.25 billion reais ($3.7 billion) in a capital increase, paving the way for a merger with Portugal Telecom SGPS SA, according to people with knowledge of the matter.

The funding includes a 2 billion-real fund raised by Grupo BTG Pactual SA and an overallotment of 750 million reais, said the people, who asked not to be identified because the details are private. In a filing yesterday, the company said it had raised 7.5 billion reais leaving out the overallotment offering, which officially concludes May 29. Preferred shares were priced at 2 reais apiece and common shares, which include voting rights, at 2.17 reais.

Oi, based in Rio de Janeiro, had aimed for a target of 8 billion reais in total funding to help pay off the debt of its controlling shareholder, Telemar Participacoes SA, and simplify the ownership structure so each shareholder will have an equal vote. The company is seeking to merge with Portugal’s largest phone operator to get savings on costs such as network equipment.

BTG and 13 other banks involved in the transaction raised the funds, which will be combined with 5.7 billion reais of Portugal Telecom’s assets for a total capital increase of 14 billion reais, in line with Oi’s goal.

BTG acted as sole lead underwriter on the deal, with four global coordinators: Bank of America Corp.’s Merrill Lynch unit, Barclays Plc, Banco Espirito Santo SA and Credit Suisse Group AG. More than 80 percent of the funds were raised from U.S. and European investors, one of the people said.

An Oi press official declined to comment, citing a silent period during the sale.

More Flexibility

Oi succeeded in raising the money even after minority shareholders including Tempo Capital fought against the capital increase, saying it would dilute their stakes. Portugal Telecom plans to acquire 4.5 billion reais in convertible debt from AG Telecom and LF Tel, which own a portion of Telemar. Oi will absorb that debt in the new company

Oi has fallen 44 percent since Oct. 1, the day before the merger was announced. The preferred shares closed yesterday in Sao Paulo at 2.37 reais, down 5.6 percent.

Oi Chief Executive Officer Zeinal Bava has said the transaction will give the combined company flexibility if it wants to do other deals in the future.

“The successful execution of this deal will pave the way for the consolidation of Tim Brasil,” a team of Sanford C. Bernstein & Co. analysts led by Robin Bienenstock wrote in a note yesterday. Oi could finance a purchase of 40 percent of Tim Participacoes SA with debt and further asset sales, the analysts wrote.

Press officials at Oi and Tim declined to comment on Bernstein’s note.