SAO PAULO â€" Brazilian securities regulators have ruled that the telecommunications company Oi can proceed with its shareholder meeting scheduled for Thursday in Rio de Janeiro and vote on a capital increase that it says is needed ahead of a planned merger with Portugal Telecom.
Tuesday’s decision is a victory for Oi’s controlling shareholders, making it more likely that the proposed transaction will win approval.
But shares of Oi tumbled more than 11 percent in trading on Wednesday.
Oi, Brazil’s largest fixed-line provider and fourth-largest mobile phone operator, and Portugal Telecom announced the proposed deal on Oct. 2 in a move to take on competitors Telefonica and America Movil, which is owned by Carlos Slim Helu.
The new company, should it form, would be the largest telecommunications company among Portuguese-speaking countries. In January, Brazil’s antitrust authority approved the merger.
But minority investors in Oi have criticized the unusually complex deal. It is not a typical merger as significant cross-ownership already exists between the two companies. Since 2010, Portugal Telecom has had a 22.3 percent stake in Oi. And Oi already owns a stake in Portugal Telecom. They share the same chief executive, Zeinal Bava, who is also slated to head the new company.
As part of the merger, Oi first is trying to raise up to 14.1 billion reais, or about $6 billion , in new capital,  in part by using shares based on a valuation of Portugal Telecom’s assets. Both the capital increase and approval of the valuation of Portugal Telecom assets are scheduled to be voted on Thursday.
Minority investors, led by Tempo Capital, an independent asset manager based in Rio de Janeiro, argued that the controlling shareholders have conflicting interests and should not be allowed to vote on the valuation of Portugal Telecom’s assets and asked the securities regulator, the CVM, to intervene.
A CVM technical body agreed earlier with those concerns, but the decision on Tuesday by the organization’s top brass reversed that decision.
Tempo, which has been an Oi investor since 2007 and says it owns about 3 percent  of the company, and others have also argued that the deal is highly dilutive for minority investors.
They have some support. In March, the influential proxy adviser firm Institutional Shareholder Services recommended against the merger. Â But an I.S.S. rival, Â Glass Lewis, recommended the transaction.
The CVM does not have the authority to block mergers but does have a legal mandate to ensure companies meet their fiduciary duties. In cases where it finds this is not happening, it can postpone a general shareholders meeting or issue an unfavorable opinion. Investors can then take that to Brazil’s judiciary to request an injunction.
In Tuesday’s ruling, the CVM left the door open for revisiting whether Oi controlling shareholders were unduly benefiting from the deal.
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