THE DEAL (New York) -- Brazilian phone company Oi has won a powerful ally for its potential run at the Brazilian unit of Telecom Italia SpA in the form of Mexico's America Movil, whose involvement could help allay investor and analyst concerns over Oi's debt.
America Movil said it will speak with Oi about a possible joint bid for Telecom Italia's indirect 67% stake in TIM Participacoes, Brazil's second-largest mobile phone company. The TIM stake was worth 21.5 billion reais ($9.4 billion) based on the company's R$13.28 closing price in Sao Paulo on Monday, when the shares rose 6.2%.
Oi, of Brazil, last month said it had tapped Andre Esteves's Banco BTG Pactual to ready a potential bid for TIM and would consider linking up with partners. Analysts welcomed the consolidation play but raised concerns about the impact on Oi's debt, which is four times Ebitda already.
Oi is also already struggling to merge with Portugal Telecom SGPS in a deal that shows the urgency with which phone companies want to enter Brazil, South America's biggest phone market. Portugal Telecom shareholders on Monday agreed to revisions to the deal terms that became necessary when Espirito Santo Financial Group defaulted on loans provided by Portugal Telecom.
The Portuguese phone company in July said it would be happy with just 25.6% of the enlarged group rather than the original 39.6% after Oi expressed dismay that it hadn't been privy to Portugal Telecom's Espirito exposure.
Brazil is already America Movil's biggest market when combining all of its cellular, broadband, fixed-line and TV businesses. The company is particularly keen to expand outside Mexico, since politicians there are forcing it to sell assets and slash its phone market share to under 50%. They're concerned about its dominant position on the domestic market.
Still, a deal between Oi and TIM could be difficult because it would cut the number of Brazilian network operators to three from four. European regulators have approved such deals with conditions that provide generous network access to resellers. The U.S., by contrast, has spurned four-to-three consolidation moves in the sector.
Oi has also reportedly tried to lure Spain's Telefonica into its offer but regulators would almost certainly reject such a deal -- the Spanish phone company already operates Vivo Participacoes, the country's biggest cellular company. Brazil's competition regulator already bristled at Telefonica's minority stake in Telecom Italia because it gave Telefonica a say in the country's top two providers.
Telefonica has since begun moving away from Telecom Italia, a move that many saw as an opportunity to move in on either TIM or Telecom Italia itself.
Still, Telecom Italia has yet to show any interest in selling TIM. The company has 27.4 billion euros ($35.3 billion) in debt but analysts have said it can handle the liabilities without any asset sales. Indeed, Telecom Italia hoped to participate in Brazilian consolidation by buying the GVT Brazilian broadband business of Vivendi.
However, Vivendi last month opted for Telefonica's 7.45 billion euro offer and entered exclusive talks, rejecting Telecom Italia's 7 billion euro indicative bid.