(Recasts with Oi CEO remarks, background, share performance throughout)
By Luciana Bruno, Guillermo Parra-Bernal and Danilo Masoni
RIO DE JANEIRO/SAO PAULO/MILAN, Jan 23 (Reuters) - Oi SA , Brazil's most indebted phone carrier, is open to all options in a potential process of industry consolidation as long as the transaction helps create value for shareholders, Chief Executive Officer Bayard Gontijo said on Friday.
Rio de Janeiro-based Oi gained financial muscle to undertake a takeover or merge with a rival after shareholders in a Portugal-based subsidiary approved the subsidiary's sale on Thursday. Oi has no plans to raise funding for any deal, which could be paid for in cash or in any other form, Gontijo added.
Asked whether Oi would prefer being the buyer or the target, Gontijo noted "Oi has no prejudices about the structure of a deal. It's too early to discuss whether we'd be in control of anything and we still need to see how conditions for a deal evolve."
This suggests a shift in Oi's stance as Gontijo previously stressed the company wanted to lead consolidation in Brazil's telecommunications market. He made the remarks the day an unnamed source with knowledge of the situation told Reuters an Oi-led group could bid for rival TIM Participações SA soon.
However, management at Telecom Italia SpA, TIM's controlling shareholder, plans to meet Brazilian government officials next week to put out feelers before deciding whether to turn the tables and make their own bid for Oi, another two sources with knowledge of that plan told Reuters.
According to one of these sources, Telecom Italia CEO Marco Patuano will seek assurance from Brazilian Communications Minister Ricardo Berzoini that the government would not oppose a possible bid for Oi. The meeting could happen next Thursday, said the source.
Telecom Italia has already signaled it is considering whether to buy or combine with Oi.
An offer from either side would be the culmination of more than a year of negotiations as Brazil's four mobile phone operators seek to reduce the number of carriers to three, as costly investments squeeze profits.
TIM shares rose 0.9 percent while Oi's preferred stock jumped 3.6 percent in São Paulo. Shares of Telecom Italia added 4.6 percent in Milan.
The sale of Portugal Telecom SGPS, which was finally approved by shareholders in the company, could net Oi about 7.4 billion euros ($8.3 billion) to fund any acquisition, Gontijo said.
With that hurdle cleared, the first source said Oi and the Brazilian units of Mexico's America Movil SAB and Spain's Telefonica SA can move ahead with a joint offer for TIM, coordinated by investment bank Grupo BTG Pactual SA .
Unlike Oi, Telefonica and America Movil, TIM lacks a fixed-line service allowing it cross-sell data and other services, which leaves it in a weaker competitive position.
The companies declined to comment.
Analysts said Oi lacks the financial muscle needed to buy a chunk of TIM, whose market value is almost seven times Oi's. Oi also is saddled with debt of more than 46 billion reais ($18 billion), the biggest among Brazilian phone companies.
Oi "has no cash and it's not able to buy anyone with that much leverage," said Celson Placido, a strategist at XP Investimentos. "It would make more sense to be bought."
Gontijo said he is confident that recent operational improvements will help Oi generate more cash that could be used to reduce debt and improve leverage metrics.
Talks with holders of Oi's local notes to amend certain contractual terms are "well advanced," Gontijo said. Oi will hold a bondholders' meeting on Monday to gain consent from investors to undertake asset sales and change a debt-reduction metric target.
($1 = 0.892 euros)
$1 = 2.587 reais Additional reporting by Leila Abboud in Paris; Editing by Bernadette Baum and Chizu Nomiyama