UPDATE 1-Generali starts unraveling Telecom Italia ownership pact

Wed Jun 11, 2014 2:55pm EDT

(Adds more details from statement, background)

By Lisa Jucca

MILAN, June 11 (Reuters) - Insurer Generali, one of four key owners of Telecom Italia, decided on Wednesday to exit ahead of time a seven-year shareholder agreement to control the Italian phone company, making room for future new investors.

Generali said in a statement it had exercised the right to withdraw from the pact its 19.3 percent holding in Telco, an investment vehicle that is Telecom Italia's biggest investor with a 22.4 percent stake.

Generali formed the Telco group in 2007 with Spanish telecom operator Telefonica and Italian banks Intesa Sanpaolo and Mediobanca to fend off a takeover bid by AT&T and Mexican tycoon Carlos Slim.

Telco members have since repeatedly written down the value of their investment as the group struggled to make money in an increasingly competitive domestic market.

Generali's decision to exit the agreement, originally due to expire at the end of 2015, kickstarts the unravelling of the pact as both Mediobanca and Intesa Sanpaolo have signalled their willingness to leave Telco and sell their Telecom Italia shares.

Generali's move is also coherent with its strategy of selling non-core assets to rebuild its capital base and focus on its main insurance business.

"The exit from Telco is in line with (Generali's) strategy, aimed at actively administrating its assets, and will streamline the management of the investment itself," said Generali.

LOOSE CONTROL

Once the Italian partners are gone, Telefonica, which controls an indirect stake of 15 percent in Telecom Italia, will be the only industrial investor in the Italy's biggest telecoms company at a time when the sector is expected to consolidate.

Last year, Telecom Italia attracted interest from Egyptian tycoon Naguib Sawiris and Hong Kong-based conglomerate Hutchison Whampoa. But the approaches were rejected by the Italian company's board.

Telco was until recently able to appoint a majority of board members. However, under pressure from minority shareholders, Telecom Italia changed its corporate governance practices this year and appointed an all-independent board.

Telefonica has a stake of 66 percent in Telco. Intesa and Mediobanca hold each 7.34 percent of Telco.

Under the terms of the Telco agreement, investors wanting to leave the pact must notify the others during set time windows. The first opportunity to do so was June.

Generali said it had asked its Chief Executive Mario Greco to define the exact procedure to implement the exit from Telco, a process that could take six months.

Quitting Telco frees its members from obligations regarding their Telecom Italia stakes, allowing them to sell their shares on the market or to another investor. Telefonica has the option to buy the stakes of its Telco partners. (Reporting by Lisa Jucca; Editing by Pravin Char and David Evans)

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