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Boston, MA 10/06/2014 (wallstreetpr) – Reuters on Friday reported that Brazil’s TIM Participações SA hired Banco Bradesco SA’s as an advisor for the bidding process for Oi SA (ADR) (NYSE:OIBR).

Telecom Italia SpA will use TIM as an investment vehicle to purchase all or part of the Oi’s assets. Both TIM and Bradesco declined to comment on the bidding process.

Few weeks ago, TIM hired Bradesco to bid for GVT SA, which lost the process as Spain’s Telefonica SA acquired GVT.

Rationale

The telecom market of Brazil is highly competitive and now heading towards consolidation to sustain their profitability in the slow growth economy. So, the acquisition of Oi SA (ADR) (NYSE:OIBR) will strengthen Telecom Italia’s position in Brazil’s telecom markets.

According to another source, the acquisition will make TIM to become the number one telecom operator that will offer integrated services in Brazil.

Risk

TIM, however, looks weaker compared to integrated service providers like Telefonica, Oi SA (ADR) (NYSE:OIBR) and America Movil SAB de CV, as said by Luigi Minerva, analyst from HSBC Securities. Minerva also said that TIM lacks few operational feasibility like fixed line phone and TV services, which require to offer combined services packages.

Besides the lack of operational feasibility, TIM will witness liquidity pressure as Oi has total debt of ~$19 million compared to its net debt, which is 0.2 times EBITDA. Therefore, Tim needs to evaluate the financial position of Oi before the bidding process.

In contrast, Minerva along with other analysts also said that there may be a possible option for reverse bidding as Oi SA (ADR) (NYSE:OIBR) hired Grupo BTG Pactual SA in last month to evaluate the feasible of reverse bid.

But, it seems too early to comment on the reverse process such as joint bidding process of Oi SA (ADR) (NYSE:OIBR) with America Movil for TIM.  In addition, a close source of the process told Reuters that BTG Pactual interested to include Telefonica for the joint bid, but, the later remained focus on its recently acquired GVT.

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