Portugal Telecom Holders Approve Sale of Portuguese Operations to Altice

By Patricia Kowsmann 

LISBON-- Portugal Telecom SGPS SA shareholders Thursday approved the EUR7.4 billion ($8.6 billion) sale of its operating unit to Luxembourg-based Altice SA, ending weeks of uncertainty about the deal.

With the acquisition Altice, which currently has a small presence in Portugal via operators Cabovisão and Oni, will become a key competitor in the country, next to Vodafone Group PLC and NOS. Patrick Drahi, who started building Altice from scratch during the 1990s by investing in underperforming cable companies, has made clear his ambition to expand the company in markets where it is present and combine fixed with mobile assets. Altice also has operations in Belgium and Israel.

Portugal Telecom shareholders were originally asked to vote on the deal in a Jan. 12 meeting, but that was postponed after the Portuguese markets' regulator, CMVM, said Portugal Telecom wasn't providing enough details about the sale plan, including alternatives to it. Portugal Telecom provided further details to the market earlier this week.

The sale is expected to close in the first half of the year and is still subject to regulatory approval.

Portugal Telecom is in the process of merging with Brazilian phone company Oi SA, and its Portuguese assets have already been transferred to Oi. While the companies said the sale of the Portuguese operations is meant to strengthen the cash position of the Brazilian business, the move raised questions about the merger itself, which was originally dubbed a combination of equals meant to benefit the operations of both companies.

In a reply to inquiries from CMVM last week, Portugal Telecom dismissed the idea its merger with Oi could be undone, saying it even sought legal opinions, but only one, in Portugal, said that would be legally possible.

Even before the sale of the Portuguese operations was announced, the relationship between the Portuguese and the Brazilian partners suffered a major setback after it was disclosed mid-last year that Portugal Telecom had purchased some EUR900 million worth of bonds issued by a unit of Espírito Santo International SA just before it collapsed.

Oi claims it wasn't aware of the failed investment. Zeinal Bava, the former head of Portugal Telecom who was meant to lead the merged company, resigned from Oi in October.

A PricewaterhouseCoopers report released earlier this month said Portugal Telecom had made consecutive purchases of bonds issued by Espírito Santo units over the years that were never subject to approval or consideration by PT's board of directors, executive committee or audit committee.

Banco Espírito Santo SA, a unit of Espírito Santo International, was a major shareholder of Portugal Telecom.

As a result of the investment loss, Portugal Telecom was forced to accept a change in the terms of the merger. Instead of owning 38% of the combined company, it now owns close to 26%.

Shares of Oi closed Thursday in Brazil up 20% at 6.77 reais, while Portugal Telecom stock gained 24% to end at EUR0.792.

Write to Patricia Kowsmann at [e-mail]

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