Major shareholders of Brazilian electricity distributors CPFL Energia (CPL, CPFE3.BR) and Neoenergia (GNAN3B.SM) denied on Friday that they had reached an agreement to swap shares, moving them one step closer to a merger of the companies.

The Camargo Correa Group, which controls CPFL and is also the owner of one of Brazil's largest construction companies, denied a Thursday report by local newspaper Folha de S Paulo that it had reached an agreement with two controlling shareholders of Neoenergia.

Folha said that Camargo Correa had agreed with state-controlled lender Banco do Brasil (BBAS3.BR, BDORY) and the bank's pension fund Previ to a swap of shares in order to create one of Brazil's biggest energy distributors. The merger would still need the approval of Spain's Iberdrola (IBDRY, IBE.MC) as the company has rights to buy shares sold by Previ and Banco do Brasil and reportedly said it would block such a merger should Camargo Correa take the lead in the newly formed company.

Previ denied on Thursday that it had reached an agreement. In a separate note on Friday, Banco do Brasil also said that no such agreement had been reached. The companies declined to comment on whether they were in talks to merge their electric distribution companies.

-By Paulo Winterstein, Dow Jones Newswires; +55 11 3544 7073, paulo.winterstein@dowjones.com