Mikhail Fridman

Russian billionaire Mikhail Fridman has withdrawn his offer to help finance a merger between Brazilian telecoms companies Oi and Tim, throwing the industry’s long-awaited consolidation into doubt.

LetterOne, Mr Fridman’s investment fund, said on Thursday that it could no longer proceed with the operation after Tim, Telecom Italia’s Brazilian subsidiary, had refused to co-operate.

“[LetterOne’s business unit] L1 Technology has been informed by Tim that . . . it does not wish to enter into further discussions about the facilitation of a merger between Oi and Tim in Brazil,” it said.

Mr Fridman offered $4bn in October last year to prop up Brazil’s heavily indebted Oi on the condition that it would merge with rival Tim to create the country’s largest wireless carrier.

Many analysts had already predicted a merger between the two groups — the final stage in a frenzy of dealmaking that has put Brazil at the centre of the global telecoms wars.

While smartphone use is expected to continue rising in spite of the country’s deep recession, a price war between Brazil’s largely foreign-owned carriers has kept returns low, encouraging a wave of consolidation in the industry.

LetterOne said that it was still interested in investing in Brazil — “a country with good long-term growth potential”.

Oi included LetterOne’s statement in a regulatory filing on Thursday, adding that it would “evaluate the impacts of this announcement for the possibilities of consolidation in the Brazilian market”.

Tim did not respond to requests for comment.

In 2014 Oi hired BTG Pactual to explore a possible acquisition of Tim, while Tim has been reported to be studying a takeover of Oi.

Although Oi is often cited as the weakest player among Brazil’s four main operators, which includes América Móvil’s Claro and Telefónica’s Vivo, analysts said Brazil’s government would be loath to let the only national company disappear.

They argued that the break-up of Tim, whose parent group in Italy has been hit by regulatory pressures, price wars and the European country’s stagnant economy, is more likely.

In 2014, Tim lost out to Telefónica in its bid for Vivendi’s Brazilian broadband business GVT— its last chance to compete with rivals as a “one-stop shop” operator in Brazil.

However, any deal involving Oi and Tim would probably meet tough opposition from Brazil’s increasingly active competition authority, Cade. Together, Tim and Oi would control almost half of the market, putting the combined company far ahead of the current market leader Vivo.

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