Portugal Telecom has announced it plans to merge with its Brazilian affiliate Oi in a deal that will create a new operator with around 100 million subscribers and a combined market value of more than €5 billion.

Oi currently provides the Portuguese operator with the majority of its revenues and is the "natural fulfilment" of the industrial alliance agreed by the two operators in 2010, the firms said.

The new company, CorpCo, will create synergies worth around €1.8 billion, according to a statement from the two companies.

Oi will conduct a cash capital increase of at least €2.3 billion as part of the deal, which PT, Portugal's biggest operator, says is backed by its two main shareholders Avistar SGPS and Nivalis Holding BV.

The firm owns 12.1 percent of the investor group that controls Oi and 19.4 percent of the Brazilian carrier's non-voting shares.

Under the deal, each PT share will be exchanged into a 0.9211 share of CorpCo. PT shareholders will own 38.1 percent of the new company, which will be listed on the Novo Mercado segment of Brazil's BM&FBovespa as well as on the NYSE Euronext and the NYSE.

PT CEO Zeinal Bava will be made chief executive of CorpCo and its subsidiaries.

"The merger will consolidate the position of both companies as the leading operator for Portuguese-speaking countries with leadership positions in all markets where it operates," PT added.

The deal, pending approval from shareholders and the relevant regulatory authorities, is expected to close in the first half of 2014.

PT has been suffering as a result of the decline in traditional telephony services combined with one of Europe's most troubled economies following the global financial crash.

It's most recent financial results, for Q2 2013, showed revenues declined 5.5 percent year-on-year to €1.5 billion. It only returned a profit as a result of divestitures, while debt debt rose to €7.9 billion.

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