* Brazil antitrust watchdog rules against Telefonica
* Decision could speed up fight over TIM Participacoes
* Telefonica prefers sale of Brazil unit, Fossati against
* TIM CEO says no way Telefonica can force sale
* Shareholder vote on Dec 20 over removal of Telecom board
By Danilo Masoni and Stephen Jewkes
MILAN, Dec 5 Rebel Telecom Italia
investor Marco Fossati said on Thursday he was opposed to the
enforced sale of the company's Brazilian mobile business, as
demanded by a local regulator, arguing this would depress its
multi-billion euro value.
Telecom Italia's 67 percent stake in TIM Participacoes
(TIM Brasil) has become an issue since TIM Brasil's
biggest rival, Spain's Telefonica, agreed a deal in
September to gradually take over Telecom Italia's controlling
shareholder group, Telco.
Brazil's competition regulator Cade ruled on Wednesday that
Telefonica must therefore withdraw from its indirect and direct
stake in TIM Brasil or seek a partner for Telefonica Brasil's
Vivo business, the country's largest mobile carrier
with a 28.7 percent market share against TIM Brasil's 27.2
Brazil's regulatory decision accelerates a potential fight
between Telefonica and other Telecom Italia shareholders
including Fossati over the future of TIM Brasil, whose market
value exceeds $11 billion.
The two sides are divided on whether the Italian group
should exit Brazil to help pay down 28 billion euros ($38
billion) of net debt, which remains high despite asset sales in
Argentina and a convertible bond issue.
"The solutions imposed by Cade on Telefonica mustn't damage
Telecom Italia. The solution cannot and must not be the forced
sale of TIM," Fossati, Telecom Italia's second biggest single
investor after Telco with his 5 percent stake, said in a
statement from his Findim holding company.
Telefonica has not yet decided how it will handle the
situation, saying on Wednesday it was studying the ruling.
Sources familiar with the matter have previously said
Telefonica would prefer to sell TIM Brasil via a break-up among
existing mobile players in Brazil, which could take place in the
second half of next year.
Analysts said Telefonica was unlikely to agree to take on a
partner for Vivo because the unit generates nearly a quarter of
group operating profit. In 2010 Telefonica bought out Portugal
Telecom's stake in Vivo for 5.5 billion euros.
TIM Brasil's CEO Rodrigo Abreu said on Thursday there was no
way Telefonica could force the sale of TIM but if an offer was
made his company would have to consider it.
"If there was an interesting proposal there would still have
to be a process open to the market. And in any case there would
have to be no issues of regulatory or competitive risk left for
TIM," he told reporters in Rio de Janeiro.
Shares in Telecom Italia ended down 2.6 percent on Thursday,
while Telefonica's closed down 1.5 percent. At 1906 GMT TIM
Brasil's shares were up 1.9 percent, while Telefonica Brasil was
up 2 percent.
For his part, Fossati says that not only would an enforced
sale of TIM for regulatory reasons result in a poor valuation
but it would also remove Telecom Italia's main prospect for
growth without solving its debt problems.
Fossati has also criticised the deal which gives Telefonica
the option to gradually take over Telco, the investment
consortium vehicle that controls Telecom Italia.
He is seeking to remove Telecom's board at a Dec. 20
shareholder meeting and influential proxy shareholder adviser
ISS recommended on Wednesday that institutional investors back
A trader who declined to be named also said Telecom Italia
shares were being hit by investors' fears of a forced sale of
"The timing implied by the Brazil antitrust ruling is not
clear yet. But the market is probably thinking about a fast sale
of TIM, which means that the price they get could be less than
the valuation most people have in their books," the trader said.
Following Cade's ruling analysts at Bernstein Research
predict that a vehicle company known in Brazil as a "Comisario
Mercantil" will be formed shortly to negotiate a possible
break-up of TIM Brasil among its three rivals, Telefonica
Brasil, America Movil, and Oi.
"We think that this vehicle is likely to bid for TIM Brasil
early in 2014," they said.
Telecom Italia's chief executive Marco Patuano said last
month TIM Brasil was a core asset and he would consider selling
it only at a "convincing" price.
A source familiar with the matter has said Telecom Italia
would want to get at least 9 billion euros for its 67 percent
stake in TIM Brasil.