Mikhail Fridman Proposes $4 Billion Investment in Oi of Brazil

The Russian oligarch Mikhail Fridman in 2008.

SÃO PAULO — The Russian oligarch Mikhail Fridman may spend as much as $4 billion to expand his telecommunication holdings into South America.

On Monday, the Brazilian telecommunications company Oi said that Mr. Fridman’s investment group, LetterOne, had given it a proposal to invest in a possible merger of Oi with Telecom Italia’s local operator, TIM Participações.

“In accordance with LetterOne’s proposal, sent by BTG Pactual to Oi’s management and board, LetterOne would be willing to invest as much as $4 billion in Oi, conditioned on the operation of consolidation (with TIM),” Oi said in a statement. The company said that it would “analyze” the offer.

Because Oi’s market value is about $650 million, Mr. Fridman’s investment would presumably give him control of Oi’s stake in any merged company, but Oi’s statement also said that any deal “would not represent an economic dilution of shareholders.”

Mr. Fridman became one of the world’s richest men after selling his stake in joint oil venture TNK-BP to Rosneft in 2013 . He also recently sold energy assets in Britain.

Through LetterOne Mr. Fridman already own stakes in two telecom companies: VimpelCom, based in Amsterdam, and Turkcell in Turkey. LetterOne said in April that it was planning to spend up to $16 billion on telecom acquisitions.

Oi hired the Brazilian investment bank BTG Pactual last year to look for a way to merge with TIM Participações. At the time, BTG stitched together a $14 billion deal in which Oi would have joined forces with Telefónica of Spain and América Móvil of Mexico to carve up TIM Participações, but the deal fell through as Telecom Italia decided to maintain its presence in Brazil.

Since then, Brazil’s economy and TIM Participações’ business model have deteriorated.

The company’s revenue is falling, its cash flow is negative, and it has lost about a third of its value on the São Paulo stock exchange over the last year.

For Oi, Mr. Fridman’s cash might be a way out of a mountain of debt.

The company, saddled with a merger with Portugal Telecom, has $13 billion in gross debt and this year had to request a waiver on loan covenants with its banks.

But it is far from certain that Mr. Fridman’s offer will indeed lead to a merger.

Jonathan Dann, telecommunications analyst with RBC Capital Markets in London, said that even though a merger between Oi and TIM Participações would have an “industry logic,” it was not clear how a deal could simultaneously reduce Oi’s debt, keep Oi’s shareholders from suffering dilution and meet Telecom Italia’s likely need for either a large cash payment or control of the new company.

“This will be a very challenging deal to structure,” Mr. Dann said.

In statement, TIM Participações said that no negotiations were currently underway with either Oi or LetterOne about a possible merger.

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