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from Breakingviews:

Portugal Telecom pays the price for weak controls

By Fiona Maharg-Bravo and Christopher Swann

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The show will go on. Portugal Telecom and Brazil’s Oi are forging ahead with their planned merger after an Espirito Santo group company failed to repay a $1.1 billion loan to PT. The Portuguese telco is paying the price for its weak controls over its own cash management. Its shareholders will now hold a smaller stake in the group it planned to form with Brazil’s Oi.

Rather than diversify its investments, PT invested 897 million euros, equivalent to nearly 40 percent of its cash balance, in Rioforte commercial paper. Rioforte’s unit Espirito Santo Financial Group is a large shareholder in Banco Espirito Santo, which in turn holds a 10 percent stake in PT. Oi says it was unaware of the investment.

The revised deal shields Oi shareholders from any fallout from the Rioforte debt fiasco. That debt was transferred to the Brazilian telco in May as part of the PT contribution to a capital increase at Oi. Portugal Telecom will get the toxic loan back, and must return Oi shares in exchange. That will shrink its stake in the combined entity from a planned 38 percent to 25.6 percent.

from Breakingviews:

Market has message for tobacco M&A trustbusters

By Kevin Allison

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

American trustbusters deciding whether to approve Reynolds American’s $55 billion deal with Lorillard will want to heed the market’s message. The combined market cap of the No. 2 and No. 3 U.S. cigarette makers has jumped more than $10 billion since merger talk surfaced. Those gains can’t be justified by the cost savings on offer. Expectations of an increase in pricing power, through the creation of an effective tobacco duopoly, may best explain investors’ enthusiasm.

from Breakingviews:

BBVA is bank of choice for Spanish bulls

By George Hay

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

BBVA  is the bank of choice for Spanish bulls. Sightings of that most Iberian of beasts are few and far between. But Spain's second-largest lender looks best for anyone believing that the country's economy is on the eve of a recovery. 

from Breakingviews:

Qatar gives SocGen an honourable exit from Egypt

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Qatar has given Societe Generale an honorable exit from Egypt. State-backed Qatar National Bank will buy the French bank’s 77 percent stake in its Egyptian unit, National Societe Generale Bank (NSGB), through a mandatory tender offer valuing the whole at $2.6 billion. The valuation of 2 times book value is lower than pre-revolution multiples, and SocGen will have to carry some currency risk. But with few-sizeable buyers willing to live with Arab spring volatility, it makes sense for SocGen to shrink while it can.

from Breakingviews:

HSBC needs to put numbers on China ambition

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

HSBC’s global strategy overhaul has reached China: the emerging market lender is in talks about offloading its 16 percent stake in Ping An, the Chinese insurer. Chief executive Stuart Gulliver could go further, by putting some numbers on his ambitions for the bank’s other Chinese assets – particularly its even-larger shareholding in Bank of Communications.

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