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Citigroup and a group of Brazilian pension funds are on Friday expected to assume operational control of Brasil Telecom, one of Brazil’s biggest telephone companies.
The move, which will bring close to an end one of the most acrimonious disputes in Brazilian corporate history, comes more than seven years after the groups invested about $1.5bn at the company’s privatisation in July 1998.
This week it seemed likely Citigroup and the pension funds would sell their stakes to Telecom Italia, the other main investor at privatisation, without taking control of the company they fought over for so long.
The investors had been ready to sell for some time. TI was the only likely buyer: taking control of Brasil Telecom would have enabled it to merge its fixed and mobile operations. TIM, its mobile service, is Brazil’s second- biggest mobile provider.
The deal would also have consolidated TI’s position in Brazil, its biggest overseas market, following retreats from other Latin American markets.
However, Citigroup and the pension funds might still be prevented from taking control by Opportunity, a Rio de Janeiro management company. Its founder, Daniel Dantas, brought together Citigroup and the funds in the consortium that bought Brasil Telecom at privatisation. Citigroup invested about $550m in the company, and the pension funds about $1bn. Opportunity later managed the investments.
The pension funds fired Opportunity in October 2003 after disagreements over the way their investments were being managed.
Citigroup fired it as manager in March, saying Opportunity had tried to sell its assets against its will. It is suing Opportunity in New York for $300m for negligence and fraud.
Working together since March, Citigroup and the funds have overcome legal obstacles thrown up by Opportunity. They have replaced Opportunity’s appointments at the network of companies that control Brasil Telecom with their own representatives. At a meeting today, they intend to do the same at the operating company, barring further last-minute legal impediments.
TI relinquished its share of control in Brasil Telecom in August 2002 to sidestep regulations and allow it to launch TIM. It expected to resume its share when regulations allowed in January 2004 but Opportunity prevented it.
In the ensuing battle, TI severed relations worldwide with Citigroup, which it said supported Opportunity. But in April this year TI reached agreement with Opportunity, paying €291m for its shares in Brasil Telecom and a further €50m in settlement of legal disputes.
TI’s deal with Opportunity was conditional on it also reaching agreement with Citi and the pension funds. During negotiations this week the two sides reportedly came close to agreement but no deal was reached. People close to TI say a final offer was rejected and negotiations have failed. Others close to the pension funds say talks remain open and agreement may be reached soon.