Brazil’s Oi on Friday revealed that it has agreed to hold exclusive talks with investment group Letter One about the possibility of merging with local rival TIM.
Oi and Letter One have agreed to an exclusivity period of seven months dating form 23 October, during which time they will discuss "business combinations involving companies or assets in the Brazilian telecommunications sector," Oi said, in a statement to the market.
Earlier this week the operator announced that it had been contacted by Lett er One, via its advisor BTG Pactual, with a proposal. The investor group said it would be willing to make a capital contribution of up to $4 billion in Oi in the event of a business combination with TIM, and requested exclusive talks with Oi to hammer out the details.
Oi said it would consider the proposal, while TIM said it was not holding discussions with either Oi or Letter One about consolidation.
TIM has yet to comment on Friday’s news.
"If the transaction is completed, we expect it would lead to a reduction in the leverage of Oi, becoming a more robust player, and would lead to the generation of important synergies and economies of scale, promoting value generation for all of our shareholders," Oi said.
"A potential business combination of Oi and TIM Participações should result in the creation of a more complete and well-positioned telecommunications operator that would be able to compete against global players already operating in Brazil," it added. "Customers should benefit from the resulting strengthening of the company."
According to the latest figures from regulator Anatel, Oi was Brazil’s fourth largest mobile operator with a market share of 17.87% at the end of August
Telefonica’s Vivo leads the market with a 29.08% share, followed by TIM with 26.21% and America Movil’s Claro with 25.43%.
Oi is the leading operator in terms of fixed lines in service; it had 15.57 million as of the end of August. It’s 6.44 million fixed broadband accesses gave it a 25.51% share of that market, making it the number two player behind America Movil’s broadband brands, which together had 31.65%.
TIM has no real presence in the fixed-line market and thus has often been named as the most likely participant in the industry consolidation that is widely expected to take place.
