Pirelli sells T.Italia control to Telefonica, banks

By Mathias Wildt and Andrew Hay

MILAN/MADRID (Reuters) - Italy's Pirelli sold its Telecom Italia (TLIT.MI) interest on Saturday to Spain's Telefonica and a group of Italian banks that will have majority control, ensuring the phone group remains in domestic hands.

The agreement thwarts interest by Mexico's America Movil and ends months of tensions between Italy's government and Pirelli, which bows out after losing more than 3 billion euros ($4.08 billion) on the investment it made 6 years ago.

Telefonica (TEF.MC), Italian banks Mediobanca MBDI.MI and Intesa Sanpaolo (ISP.MI), insurer Generali (GASI.MI) and Sintonia, an investment company of Italy's Benetton family, will buy Olimpia from Pirelli for 4.1 billion euros in cash, valuing the holding at 6.8 billion euros including debt, the buyers said.

They will then form a new company, to be called Telco, which will include Olimpia's 18 percent stake in Telecom Italia as well as Generali's 4 percent and Mediobanca's 1.6 percent for total of 23.6 percent of Italy's largest telecoms group.

Telefonica will pay 2.31 billion euros for 42.3 percent of Telco, giving it a 10 percent indirect stake in Telecom Italia and two seats on its board.

But Italian investors will hold 57.7 percent of Telco and name its chairman, assuaging the Italian government of Romano Prodi who repeatedly said he favored Italian control of Telecom Italia.

Also, Telefonica will name only two of the 15 Telecom Italia board members chosen by Telco.

U.S. phone giant AT&T (T.N), which was in talks with Pirelli alongside America Movil, pulled out citing Rome's interference.

"I see positively the efforts to create a stable shareholders' base for Telecom," Generali Chief Executive Giovanni Perissinotto said on Saturday.

Pirelli said it expects the agreement to be finalized by October.

Generali will have 28.1 percent of Telco, Mediobanca 10.6 percent, Intesa Sanpaolo 10.6 percent. The Benetton family, which had 20 percent of Olimpia, will hold 8.4 percent of Telco.

The new company will have a capital of 5.14 billion euros and aims to sell new shares for 900 million euros at a later stage to Italian financial investors.

The agreement values Telecom Italia shares held by Olimpia at 2.82 euros each, the banks said.

However, the Italian investors said they invested cash or Telecom Italia shares valuing them at 2.53 euros each, which means Telefonica paid more than 2.82 euros for each Telecom Italia share it bought.

Telecom Italia shares closed at 2.27 euros on Friday, while Pirelli's ended at 0.93 euros and Telefonica's at 16.55 euros.