Brazil's Oi to merge with Portugal Telecom

Brazilian operator Oi and its largest shareholder Portugal Telecom have agreed to merge into a combined entity called CorpCo. The deal is expected to enable CorpCo to generate operational and financial synergies, with a net present value (NPV) of approximately R$5.5bn ($2.5bn) and benefit from increased scale.

Oi CEO Zeinal Bava, who was also CEO of Portugal Telecom from 2008 to 2013, will lead the merged company. PT already holds a 23.4 per cent stake in Oi.

The merged entity will have around 100 million subscribers and Oi said that it will carry out a capital increase of at least $5.9bn. The agreement has the backing of Portugal Telecom’s two biggest shareholders, Avistar SGPS and Nivalis Holding BV, the operator said.

Speaking at revenue assurance firm WeDo’s user group in May this year, Bava conceded that Portugal Telecom lacks the capital to drive consolidation in Europe, making Brazil the firm’s future for opportunities to expand and grow revenue. Five years ago, he said, PT’s international footprint was managed like a holding company. But today there is a lot more integration across the portfolio, which includes a number of African operations. Operators will have to build greater reach through in-market consolidation, international expansion and service diversification in order to stay relevant in the internet age, he said.

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“We have to be players in this market. If we do nothing, and if we continue to be held hostage to the quarterly announcements that we have to make to the markets, then I think we will have no perpetuity. 50 per cent of the value of a company is perpetuity and if we do not lead this process of change the chances are we will have no perpetuity, which means that our companies will be worth half of what they are today.

“What this industry needs to understand is that it needs to grow its share of wallet. We need to invest a lot and generate returns for our shareholders but we cannot do this with irrational competitive behaviour based solely on pricing. We need to be able to look Apple and Google in the eye and have a game plan.”