(Updates with vote, comments)
By Daniel Alvarenga
LISBON, Jan 22 (Reuters) - Portugal Telecom SGPS's shareholders approved on Thursday the 7.4 billion euro ($8.4 billion) sale of the firm's former operations by merger partner Oi to Altice, as expected.
The deal to sell the Portuguese assets to rival Altice , owned by Franco-Israeli billionaire Patrick Drahi, should allow Oi to pay down its debts and take an active part in telecom market consolidation in Brazil. That should benefit Portugal Telecom as Oi's largest shareholder in the long run.
The sale marks the effective unwinding of a merger between Portugal Telecom and Oi which had envisaged the creation of a major transatlantic operator in the Portuguese-speaking world with over 100 million clients.
"In reality the process, the creation of a global Portuguese-language operator, was all changed, which was a great shame," said Portugal Telecom chief executive Joao Mello Franco.
"There was an emotional debate...but it was a decision by the shareholders with a big majority. It was the best solution."
The merger soured last year after Portugal Telecom ended up with 900 million euros in defaulted debt it had bought from Portugal's now bankrupt Espirito Santo Group.
Oi chief executive Bayard Gontijo, who attended the shareholder assembly in Lisbon, said the approval was the best outcome.
"This is best for the two companies, for PT Portugal and for Oi," he said.
Oi had not been informed of the investment in the Espirito Santo debt by its merger partner, which led to a revision of the merger terms, leaving the Portuguese shareholders with a smaller stake in the enlarged company of 25.6 percent.
The chief executive of Portugal Telecom and Oi also resigned after the investment and prompted Oi to accept an offer to sell its merger partners' operations, which had previously transferred to it.
Shares in both Portugal Telecom and Oi surged. Portugal Telecom shares closed 24 percent higher on the predicted outcome of the vote after hitting all-time lows on Monday. In Sao Paulo, Oi shares rose 22 percent.
The shareholder meeting had been postponed earlier this month, casting doubts over whether the deal would be approved.
At Thursday's vote, Oi was barred from voting due to conflicts of interest despite holding 10 percent of Portugal Telecom.
Portugal Telecom workers' union and the chairman of the shareholder meeting opposed the sale and the continuation of the merger with Oi because the sale was not envisaged in the original agreement between the two.
$1 = 0.8807 euros Reporting By Daniel Alvarenga; Writing by Axel Bugge; Editing by Greg Mahlich and Elaine Hardcastle