Phone Company

Brazil's Oi gains on bets EU move to make stock takeover target

Tele Norte Leste Participacoes SA, Brazil's biggest phone company, gained on speculation it will be taken over by Portugal Telecom SGPS SA as that company seeks to maintain a foothold in Latin America's biggest economy.

The Portuguese government last week unexpectedly used its veto power to block Telefonica SA's 7.15 billion-euro ($8.96 billion) bid for Portugal Telecom's stake in Vivo Participacoes SA, Brazil's biggest mobile-phone company.

Tele Norte Leste, known as Oi, rallied today on speculation the European Union will void Portugal's decision, clearing the way for the sale to Telefonica and spurring Portugal Telecom to look for other assets in Brazil, said Maria Tereza Azevedo, an analyst at Link Corretora in Sao Paulo.

"Investors are speculating the European Court of Justice isn't going to approve Portugal's golden share" on July 8, Azevedo said. "Once Portugal Telecom sells Vivo, consequently investors think it would go after Oi."

Telefonica's offer for Portugal Telecom’s stake in their 50-50 venture Brasilcel NV, which owns 60 percent of Vivo, had been accepted by 74 percent of the investors present at a shareholders’ meeting in Lisbon on June 30.

Portugal Telecom hasn't studied any concrete merger in the Brazilian market and hasn't mandated any third party to negotiate a merger or the purchase of a stake in Oi, the Portuguese company said in a regulatory filing yesterday.

Oi's preferred shares helped lead gains on the benchmark Bovespa index, rising 1.9 percent to 27.30 reais at 12:09 p.m. New York time. Vivo's voting shares increased 0.2 percent to 86 reais while the Bovespa fell 0.5 percent.

(Published by Bloomberg – July 5, 2010)

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