Telecom Italia board to discuss bid for Brazil's GVT

Thu Nov 15, 2012 12:00pm EST

* Board will weigh whether GVT deal is needed-COO

* Sawiris offer is one option to help finance GVT bid -COO

* Tel Italia sees Brazil as core market -COO

* GVT is a "good and interesting asset" -COO

By Leila Abboud

BARCELONA, Nov 15 (Reuters) - Telecom Italia's board will discuss whether to bid for Brazilian telecom operator GVT at a December 6 meeting, the chief operating officer said.

If the board decides that the potentially 7 billion euros ($8.9 billion) deal for Vivendi-owned GVT is needed to boost its current presence in Brazil, then it will weigh how to finance it, including the recent proposal from Egyptian tycoon Naguib Sawiris to invest in Telecom Italia via a capital increase.

COO Marco Patuano said at an investor conference held by Morgan Stanley that Telecom Italia was dedicated to its business in Brazil, where it owns the third-biggest mobile player TIM.

"We always said Brazil is a core market for us, and there is a good and interesting asset for sale," he said, referring to broadband specialist GVT.

"If the board considers that these investments have to be made in Brazil, then all the possibilities on financing will be evaluated, including the offer of Sawiris, which would add financial flexibility."

Patuano declined to comment on the amount of backing that Sawiris had offered in a letter he sent to the company, expressing his interest in investing in Telecom Italia.

Press reports have put the figure between 2-5 billion euros, while Sawiris has denied the 5 billion figure. Patuano said only that the letter was an "important declaration of interest" but was "fairly general" and did not go into details.

Vivendi is seeking to sell GVT and other assets as part of an ongoing strategy review aimed at cutting debt and boosting its flagging share price.

Sources have told Reuters that Vivendi is seeking at least 7 billion euros for GVT, and that Telecom Italia is one of four companies that have obtained documents on the Brazilian telecoms company. The deadline for preliminary, non-binding bids is around the end of the year, the people said.

GVT is a fast-growing alternative provider of fixed telephone, broadband, and TV services in 120 Brazilian cities, which Vivendi bought in 2009 for 2.9 billion euros.

Since Telecom Italia's own fixed broadband market share is very low in Brazil, analysts say GVT would allow the Italian group to better compete with rivals America Movil and Telefonica.

America Movil, U.S.-based DirecTV, which is a big player in Brazil's pay-TV, and former incumbent Oi have also received information on GVT and are weighing bids, the sources said.

Telecom Italia's potential interest in GVT sets up a clash with Spain's Telefonica, which owns a 10.5 percent indirect stake in the Italian group via a holding company known as Telco.

Telefonica and Telecom Italia are competitors in Brazil, so analysts have speculated that the Spanish group will not be eager to see it snap up GVT.

The unlisted holding company Telco own 22.4 percent of the Telecom Italia, and its shareholders are Telefonica, insurer Assicurazioni Generali, and banks Mediobanca and Intesa Sanpaolo.

NETWORK SPIN-OFF

Also on the agenda for Telecom Italia's board on December 6 is a plan to spin-off the operator's fixed network in Italy, Patuano said.

Telecom Italia is considering the radical move to put its existing network of decades-old copper lines - worth between 9 and 15 billion euros - into a separate company that would run Italy's fixed telephone and broadband system and sell capacity to other Internet providers on a wholesale basis.

The new "access network company" could attract investment from outside investors including Italy's state-backed investment fund CDP, which is in talks with Telecom Italia over such a move.

Proponents of the move, including some in the Italian government, say the spin-off would give Telecom Italia more incentive and means to invest in broadband, which is notoriously slow and weak in the country.

"Given the fact that the network separation is a potentially transformational deal for Telecom Italia, it has to be performed very carefully and in an orderly manner," said Patuano.

"We appointed our advisers to have the discussions with the potential co-investor to negotiate on value of the underlying asset, the capital structure of separated entity, the governance, and the capital investment budget."

"The results of that process will be presented to the board and they will decide if whether to move forward," he explained.

Once that first stage was completed, Telecom Italia would still have major questions to negotiate with regulators on how new wholesale company would be regulated, Patuano added, so a second study phase of the spin-off will be needed.