Telefonica to increase hold over Telecom Italia

Tue Sep 24, 2013 1:06pm EDT
 
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By Danilo Masoni and Stefano Rebaudo

MILAN (Reuters) - Spanish telecoms group Telefonica (TEF.MC: Quote) has struck a deal to gradually secure control of Telecom Italia (TLIT.MI: Quote) and its lucrative south American business without having to launch a full takeover bid.

The multi-part 860 million euro ($1.16 billion) cash and shares deal secured on Tuesday will allow Telefonica to raise its stake in Telco, the holding company controlling about 22 percent of Telecom Italia, allowing Telco's other investors, Intesa Sanpaolo (ISP.MI: Quote), Generali GASI.MI and Mediobanca (MDBI.MI: Quote) to eventually bow out.

Telefonica, which has debt of nearly 50 billion euros ($67.46 billion), wanted influence over what happens to Telecom Italia and its prized Brazilian mobile unit Tim Participacoes TIMP3.SA, but at minimal cost.

Despite its own debt burden of nearly 29 billion euros ($39.13 billion) and sinking margins at home, Telecom Italia was viewed as a potential takeover target, attracting interest from Egyptian tycoon Naguib Sawiris and Hong Kong-based Hutchison Whampoa 0013.HK, while U.S. telecoms group AT&T (T.N: Quote) has also had contacts with the firm, people close to the matter have said.

The agreement ends months of speculation over the future of Telecom Italia which is seeking capital to cut its debt, but is likely to face scrutiny at a prospective break-up of Italy's biggest telecoms group as well as possible lay-offs.

Junior economy minister Antonio Catricala ruled out on Monday a government intervention to keep the former state monopoly under national control but expressed his support for a plan to sell the company's fixed-line network, Italy's most sensitive telecoms infrastructure, to a state-backed fund.

The government's decision not to intervene could have implications for other large Italian groups, such as Alitalia CAITLA.UL which is being stalked by Air France-KLM AIRF.PA, adding to the list of large Italian groups which have been acquired by foreign shareholders.

For the time being the Spanish group has ensured its Italian partners looking to cut their unprofitable investments in Telecom Italia do not sell out to a rival.   Continued...

 
A man uses a Telecom Italia phone booth in front of St Peter's Basilica in Rome September 24, 2013. REUTERS/Alessandro Bianchi