Telecom Italia delays decision on Hutchison merger talks

MILAN Wed May 8, 2013 12:15pm EDT

A Telecom Italia antenna booster is seen in northern Rome November 12, 2012. REUTERS/Alessandro Bianchi

A Telecom Italia antenna booster is seen in northern Rome November 12, 2012.

Credit: Reuters/Alessandro Bianchi

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MILAN (Reuters) - Telecom Italia (TLIT.MI) delayed a decision on whether to open formal merger talks with Hong Kong-based conglomerate Hutchison Whampoa (0013.HK), buying more time to win over its divided shareholders.

Italy's largest phone group by market share said last month that Hutchison was interested in becoming its biggest shareholder.

A deal would likely require Telecom Italia to spin off its fixed-line network to overcome political opposition to a foreign investor owning an asset that is important for the whole country.

Failure to tie up with a cash-rich partner like Hutchison or to sell a stake in its fixed-line network could force Telecom Italia to consider other ways to cut its 28.3 billion euros ($37.3 billion) of debt and fund costly network upgrades.

Telecom Italia investors are divided on a potential deal with Hutchison, several sources with knowledge of the situation have said.

"There is no mandate to open merger talks. We'll hold another meeting within a month," Telecom Italia board member Tarak Ben Ammar said on Wednesday.

"We have decided to continue assessing the situation with the aim of finding a way to improve share prices and create value."

Ben Ammar said all four investors in Telco, a shell company that owns 22.4 percent of Telecom Italia, were in principle not against the deal. These investor paid more than three times the current market price to buy Telecom Italia shares in 2007.

But two sources with knowledge of the situation have said Spain's Telefonica (TEF.MC), currently Telecom Italia's biggest investor and a Telco shareholder, is strongly against a tie-up.

Telefonica said on Wednesday it was supportive of any action that Telecom Italia, whose credit ratings are one notch above investment grade, could take to improve its value.

Analysts have said Telecom Italia could raise money by a cash call or a sale of Brazil's TIM Participacoes (TIMP3.SA) as an alternative to a deal with Hutchison.

Telecom Italia shares closed down 0.6 percent. The stock had rallied 25 percent from near record-lows since media reports last month of a possible tie-up.

Telco investor IntesaSanpaolo (ISP.MI) has said it is open to a deal while insurer Generali (GASI.MI) and investment bank Mediobanca (MDBI.MI), also in Telco, have some reservations, people familiar with the situation have said.

Franco Lombardi, head of Telecom Italia small investors association ASATI, said he welcomed a separation of the network and then a deal with Hutchison assuming the tie-up brought benefits for all shareholders and not only for Telco.

"Telefonica does not want to exit but the Italian banks do. Things must be done in the interest of all shareholders," Lombardi told Reuters.

(Additional reporting by Stefano Rebaudo, Francesca Landini in Milan and Clare Kane in Madrid; Editing by Erica Billingham)

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