Exclusive: Telefonica likely to back Telecom Italia cash call, eyes TIM sale

Wed Nov 6, 2013 10:06am EST
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By Julien Toyer, Sophie Sassard and Danilo Masoni

MADRID/LONDON/MILAN (Reuters) - Spain's Telefonica is set to agree on an overhaul of Telecom Italia finances, including a likely cash injection of up to 2 billion euros, as it tightens its grip on the group and eyes a sale of its Brazilian unit TIM in 2014, multiple sources familiar with the strategy said.

Telecom Italia's board, controlled by Telco, an investment vehicle that Telefonica has agreed to progressively take over, is due to meet on Thursday to review cost-cutting, debt-reduction and growth strategies.

Apart from a possible capital increase of up to 2 billion euros ($2.7 billion), other options under consideration include sales of assets such as the group's mobile towers in Italy or its Argentinian unit, and a dividend cut, the sources said. No decision has yet been made on any of these.

Telefonica declined to comment, and Telecom Italia did not respond to a request for comment.

If the Spanish telecom operator, which bought into Telecom Italia six years ago when the local government sought a white knight to put off other foreign buyers, succeeds in getting approval to sell TIM Brasil, it will be a sign that it has gained the upper hand in the loss-making investment that has been a major headache in recent years.

A decision on the sale of TIM, which is the second-biggest mobile carrier in Brazil behind Telefonica's own Vivo, will not be made on Thursday, said the people familiar with the situation.

But in order to advance toward that end, the sources said Telefonica has no alternative to putting more money into Telecom Italia in order to buy time and prepare the TIM sale, although such a move is risky because the Spanish company is racing to reduce its own debt load.

TIM may have to be broken up between the existing mobile operators in Brazil instead of an outright sale to one of them because of the government's desire to prevent price rises. Brazil's government would have to sign off on the deal.   Continued...

A man walks past Telefonica's building in central Madrid March 26, 2013. REUTERS/Juan Medina