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UPDATE 1-Oi partners may sue Portugal Telecom on debt deal, source says

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SAO PAULO, July 15 (Reuters) - Some large shareholders in Grupo Oi SA could take partner Portugal Telecom SA to court if a debt investment made by the latter ends up in default, a step that could delay the companies' planned merger, a source close to the transaction said on Tuesday.

Shareholders of Rio de Janeiro-based Oi want to push Portugal Telecom to agree to have a smaller stake in CorpCo, as the company resulting from the merger is known, depending on the outcome of the debt negotiations later on Tuesday, said the source, who requested anonymity because of the sensitivity of the issue.

The merger, however, is not at risk because "both companies need each other," the source added. The combination is touted as a chance to strengthen Oi's corporate governance after years of bickering between minority and controlling shareholders.

Going to court would be a "last resort" for the Oi shareholders, who were not informed of Portugal Telecom's 897 million euro ($1.2 billion) investment in Rioforte, a vehicle controlled by Portugal's Espírito Santo family, the source said.

The family owns about 10 percent of Portugal Telecom. Oi is controlled by Portugal Telecom and by other Brazilian companies including Andrade Gutierrez SA, the Jereissati family, a number of state-controlled pension funds and development bank BNDES.

If the debt is not repaid and Portugal Telecom has to write off the investment, the shareholders in Oi would have to sue in order "not to be seen as negligent or lenient over a serious corporate governance flaw," the source added.

Rioforte is preparing to file for creditor protection with a court in Luxembourg in hopes of preventing an uncontrolled fire sale of assets, sources with knowledge of the situation told Reuters on Tuesday. Those same sources declined to comment on how such a filing would impact the repayment of Rioforte's debt to Portugal Telecom, adding that negotiations on the matter were ongoing.

Oi, BNDES, Portugal Telecom, Andrade Gutierrez and the Jereissatis did not have a comment.

Common shares of Oi shed 2.4 percent to 1.62 reais, nears record lows touched earlier this week. Oi's preferred shares were unchanged at 1.56 reais, while Portugal Telecom slipped 2.1 percent to 1.83 euros.

Portugal Telecom's two debt investments in Rioforte were equal to roughly 40 percent of the telecom firm's market value.

Brazilian newspaper Valor Econômico reported on Tuesday that, in the event of a default, Oi shareholders would push to reduce Portugal Telecom's stake in CorpCo to 20 percent from the current 37 percent, and could sue if Portugal Telecom resisted.

Valor, without citing sources, said shareholders, executives and lawyers of both firms were monitoring whether the Espírito Santo family-controlled investment vehicle would repay the 847 million euros of the investment falling due later in the day.

According to Valor, it is still unclear how proceedings will unfold if the debt payment is partially or totally rolled over for payment at a later date.

(Additional reporting by Reese Ewing and Brad Haynes; Editing by James Dalgleish)