OIBR.C Oi SA

   By Rogerio Jelmayer  and  Jeffrey T. Lewis 
 

SAO PAULO-The Brazilian government would study any potential merger or acquisition agreement between telephone companies Oi SA and TIM Participacoes SA closely to avoid too much concentration in the sector, Communications Minister Andre Figueiredo said Tuesday.

Oi announced Monday that LetterOne, an investment firm led by Russian billionaire Mikhail Fridman, is planning to invest $4 billion in the Brazilian phone company. The offer is conditioned on the success of a potential merger with TIM Participacoes, the Brazilian unit of Telecom Italia SpA, Oi said. TIM Participacoes said Monday that there are no talks with LetterOne or Oi about a possible merger or acquisition.

"The Brazilian government will follow with attention the case announced by Oi about TIM," Mr. Figueiredo said at a conference. "We'll only comment when we've been formally informed by the company."

Oi has 35% of Brazil's fixed-line telephone market, but it fell behind rivals in the mobile race and has been trying to make up ground while cutting its heavy debt load. Mobile operator TIM doesn't have a relevant position in the fixed-phone and broadband markets, according to analysts.

Later, at the same conference, Telecom Italia Chief Executive Officer Marco Patuano said a combination of TIM Participacoes with Oi would be "one of the options," but added that all the telecom companies in Brazil are in need of more investment.

In the second quarter, the most-recent figure available, Oi's net debt totaled 34.64 billion reais (about $8.9 billion), while its net revenue in the period totaled 6.78 billion reais.

When asked about Oi's debt level, Mr. Figueiredo said the government might help the company if necessary.

"Nothing has been ruled out," he said. "We know how important Oi is, though that doesn't necessarily mean the government will inject cash directly into the company."

Meanwhile, Oi said that it is working to improve its performance.

"We are engaged in the improvement of our balance sheet and in the improvement of our debt profile, in order to prepare the company to participate in the consolidation process of the telecom industry in Brazil," said Oi CEO Bayard Gontijo to The Wall Street Journal, before his participation in an event in Sao Paulo.

Shares of Oi and TIM Participações fell mid-Tuesday, after being the Ibovespa stocks index's biggest and second-biggest gainers, respectively, on Monday. Oi recently was down 3.7%, to 3.37 reais, and TIM Participacoes was down 8.2%, to 7.87 reais. The Ibovespa was down 0.7%.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Jeffrey T. Lewis at jeffrey.lewis@wsj.com

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(END) Dow Jones Newswires

October 27, 2015 14:32 ET (18:32 GMT)

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