Telefonica, Oi, Claro Said to Plan $15 Billion Offer for Tim

By Cristiane Lucchesi, Manuel Baigorri and Christiana Sciaudone Dec 11, 2014 3:21 AM PT

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Oi SA (OIBR4), Telefonica SA (TEF) and Claro SA are planning to make an offer for Tim Participacoes SA (TSU) that would value Brazil’s second-largest mobile-phone company at about $15 billion, people with knowledge of the matter said.
The bid to buy Rio de Janeiro-based Tim, which is 67 percent owned by Telecom Italia SpA (TIT), would be made by Grupo BTG Pactual (BBTG11) acting as a financial vehicle, the people said, asking not to be identified because the discussions are private.
Oi agreed to sell its Portuguese assets this week, paving the way for it to buy part of Tim. Oi, Brazil’s smallest wireless provider, would add mobile users and gain access to better infrastructure after investing less than rivals in its network. Brazil’s four biggest carriers have been competing in a market where there are fewer new users and billion-dollar investments have eaten away at margins.
Tim’s American depositary receipts surged as much as 19 percent
yesterday after being halted on the news. Oi’s ADRs climbed as much as 4.4 percent, while Telefonica Brasil SA rose as much as 3.1 percent. Telecom Italia jumped as much as 5.8 percent and rose 2.1 percent to 94.3 cents at 12:19 p.m. in Milan. Telefonica added 0.2 percent to 12.94 euros in Madrid.

Photographer: Lianne Milton/Bloomberg

Pedestrians walk past a Tim Participacoes SA retail store in the Ipanema neighborhood... Read More

Telecom Italia believes Tim should be valued at about 20 billion euros ($25 billion) or more, including debt, according to a person familiar with the matter. The Italian carrier last month received authorization from its board to explore a combination between Tim and Oi. A Telecom Italia representative declined to comment.

Splitting Assets

BTG would acquire Tim and then split it into three, the people said. Oi would have about 25 percent of Tim, and Claro -- owned by billionaire Carlos Slim’s America Movil SAB -- and Telefonica would divide the rest between them, the people said. Telefonica will join Oi and Claro later, after its acquisition of Brazilian broadband provider GVT from Vivendi SA is approved by local regulators, the people said.
The companies are prepared to offer about 7.5 times Tim’s earnings before interest, taxes, depreciation and amortization, the people said. That would work out to be more than 40 billion reais ($15.3 billion), or about 40 percent above Tim’s valuation including debt, according to data compiled by Bloomberg. Representatives for Oi, Telefonica, America Movil, Claro and BTG declined to comment. Tim said in a filing it isn’t aware of any agreement, negotiation or proposal involving the company.

Portugal Sale

Billionaire Patrick Drahi’s Altice SA agreed this week to buy Oi’s Portuguese assets for 7.4 billion euros, unraveling Oi’s merger with Portugal Telecom. Oi said in a Dec. 8 statement that the company would “maintain its objective of leading the consolidation movement in the Brazilian telecommunications market.”
Telefonica, owner of the Vivo brand in Brazil, is prepared to take part in further consolidation in the country’s phone market, Chief Financial Officer Angel Vila said last month at a conference in Barcelona.
“We are in a position to participate, but probably we don’t need to be the ones to initiate,” he said.
Banco Santander SA is advising Telefonica on the Tim deal. The bank declined to comment.
America Movil Chief Financial Officer Carlos Garcia-Moreno said in a Sept. 9 interview that the carrier was entering talks to make a joint bid with Oi for Tim.
For Related News and Information: Tim Analyzes Oi, Says Deal for Brazil Rival Could Be ‘Accretive’ Billionaire Drahi to Buy Oi’s Portuguese Assets for $9.1 Billion Telecom Italia Gets Board Backing to Explore Oi Deal in Brazil Top Brazil Stories