Oi's Portuguese Assets May Spark a Bidding War

The battle for the Portuguese telecommunications assets of Brazil’s Oi SA is heating up. It was announced Wednesday that private equity funds Apax Partners and Bain Capital have made a joint $8.8 billion offer for the Portuguese assets of Oi SA (ADR) (NYSE:OIBR) (BVMF:OIBR4). This puts the ball in the court of France’s Altice SA (AMS:ATC), who analysts say is likely to make a counter bid which could spark a bidding war.

The offer from the two PE firms is for 7.075 billion euros is slightly higher than the €7.025 billion bid Altice made for the assets just over a week ago.

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Oi’s disastrous merger with Portugal Telecom

Oi acquired Portugal Telecom just over a year ago, but the deal that closed this summer has turned out to be a disaster. It was announced a few months ago that Portugal Telecom, SGPS (ADR) (NYSE:PT) (ELI:PTC) had put €900 million in RioForte, a division of severely troubled Banco Espirito Santo SA (ELI:BES). RioForte has now defaulted on the debt, leaving a huge hole in Oi’s balance sheet.

Allegations that Portugal Telecom’s management may have knowingly concealed this investment from Oi SA (ADR) (NYSE:OIBR) (BVMF:OIBR4)’s management and the market have also surfaced, Oi’s stock nosedived and CEO Zeinal Bava resigned in October.

Details on offers for Oi

The offers from both Altice SA (AMS:ATC) and the PE firms do not include the Oi SA (ADR) (NYSE:OIBR) (BVMF:OIBR4)’s RioForte investment, debt or other African assets. Both offers make €800 million of the price based on the assets’ future revenue and cash flow.

The offer from Bain and Apax includes a little more up front and an earn-out payment of €400 million related to future revenue generation, as well as a €400 million payout related the future generation of earnings before interest, taxes, depreciation and amortization.

Another offer that surfaced over the weekend takes a different tack: Isabel dos Santos, the daughter of the President of Angola, made an offer of €1.2 billion for Portugal Telecom SGPS, a holding company that owns the near-valueless RioForte investment, a 25.6% stake in Oi SA (ADR) (NYSE:OIBR) (BVMF:OIBR4) and the right to veto asset sales.

The company has refused the offer, but Ms. dos Santos has indicated she intends to continue negotiating.