What? Portugal Telecom and Oi of Brazil announced a merge of the companies.
Why it matters:Whit this merge, the companies are creating the largest telecommunications company in the Portuguese-speaking world.
The new company will be based in Brazil. Portugal Telecom and Oi together had 37.5 billion reais ($17 billion) in revenue in 2012. Oi is the largest fixed-line and broadband provider and the fourth-largest mobile phone operator in Brazil. The companies said they would have a combined 100 million subscribers.
According to the New York Times, as part of the deal, Oi will issue shares to raise 7 billion to 8 billion reais in cash in the first half of 2014. An investor group that includes the Brazilian bank BTG Pactual has already agreed to buy shares worth 2 billion reais. Portugal Telecom bought 22.3 percent of Oi in 2010. Since June, the two companies have had the same chief executive, Zeinal Bava, who will also lead the new company. Portugal Telecom’s current shareholders will own 38.1 percent of the new company.
It’s the second major trans-Atlantic telecom deal announced this year, after Mexican billionaire Carlos Slim’s America Movil SAB launched a takeover of Dutch telecommunications firm Royal.
The merger is not expected to encounter any antitrust problems, because Portugal Telecom sold its stake in another Brazilian telecommunications firm in 2010.
According to 4-traders, the merger comes at a difficult moment for both Oi and PT. The Brazilian firm is weighed down with enormous debt but must continue to invest to remain competitive. PT, meanwhile, has a small and struggling market at home. Portugal’s economy has been in a prolonged recession as a result of government spending cuts implemented in the wake of the European sovereign debt crisis.