Oi Said to Seek Partners to Acquire Tim for Brazilian Breakup

Aug 27, 2014 7:40 pm ET

Aug. 28 (Bloomberg) -- Oi SA, Brazil’s fourth-biggest wireless carrier, is looking for partners to make a joint bid for Tim Participacoes SA and is only interested in taking a portion of its rival’s assets, according to people familiar with the matter.

The company’s adviser Banco BTG Pactual SA is trying to get Telefonica SA and America Movil SAB to team up with Oi on a mostly cash offer to acquire Tim from Telecom Italia SpA and then break up the Brazilian mobile phone company, said two of the people, who asked not to be identified because the discussions are private. They said any offer would surpass Tim’s market value, which was 30.8 billion reais ($13.7 billion) yesterday.

While Tim’s parent company Telecom Italia has said it won’t sell the unit, Rio de Janeiro-based Oi is pushing for a way to get involved in the frenzy of potential mergers in Brazil. Oi said this week that BTG, which is also one of its largest stakeholders, would seek to acquire Tim shares on its behalf by acting as its financial agent. Oi isn’t allowed to own Tim shares directly without regulatory approval.

As the most indebted of Brazil’s four major wireless carriers, Oi made the move after GVT, one of the country’s fastest-growing broadband providers, became a takeover target for Telefonica and Telecom Italia.

‘Completely Extraneous’

Telecom Italia is “completely extraneous to the Oi SA initiative, about which it knows nothing,” the Italian company said yesterday in a statement. It said Tim is “a strategic asset on which it is committed to concentrating important investment and growth prospects.”

Representatives for BTG, Telefonica, Oi and America Movil declined to comment. As Oi’s financial agent, BTG isn’t planning to use its own money in a possible transaction, the people said.

Tim surged 11 percent to 12.72 reais yesterday in Sao Paulo, while Oi jumped 6.7 percent to 1.43 reais.

Brazil’s four biggest wireless companies are looking for ways to combine as market growth slows and the government pushes for greater infrastructure investment. The pressure has been most intense on junk-rated Oi and Tim, whose parent Telecom Italia has also lost its investment-grade ratings.

Earlier Talks

Oi was in talks with Telefonica earlier this year to explore a plan to break up Tim and divvy it up, with America Movil also getting a portion, Bloomberg News reported in May.

Telecom Italia wants to keep Tim, Chief Executive Officer Marco Patuano said as recently as May. The Brazilian unit is still gaining subscribers, while the Italian company’s domestic customer base is shrinking.

The role of kingmaker in Brazil may be played by Vivendi SA, which owns GVT, the nation’s fourth-largest provider of high-speed Internet over landlines. Paris-based Vivendi is already entertaining a 6.7 billion-euro ($8.8 billion) bid from Telefonica for GVT, and Telecom Italia has said it is working on its own offer.

Complicating matters further, Telefonica owns a stake of about 8 percent in Telecom Italia, the result of a 2007 deal that was meant to foster cooperation and has since soured. Telefonica’s offer for GVT would also give Vivendi the right to acquire the Telecom Italia stake.

If Telecom Italia wins Vivendi’s favor, it could combine GVT with Tim to help stave off a breakup of its Brazilian business, at least for now, said Walt Piecyk, an analyst at BTIG LLC, in a research note yesterday.

On the other hand, if Vivendi agrees to sell GVT to Telefonica, the Spanish company would have less capital to commit to any deal with Oi to break up Tim. The potential loss of a partner may have hastened Oi to reveal its plans for Tim yesterday, he said.

“Oi may have grown concerned that Telefonica’s pursuit of GVT would delay or eliminate Oi’s participation in the purchase of Tim,” Piecyk said. “Oi does not have the financial wherewithal to proceed with an acquisition of Tim Part on its own.”

--With assistance from Rodrigo Orihuela in Madrid and Manuel Baigorri in London.