| MILAN, April 5
MILAN, April 5 The board of Telecom Italia
is expected to discuss a possible tie-up with
Hutchison Whampoa's Italian business next week,
sources with direct knowledge of the situation said, in new
attempt to revive the company.
Chairman Franco Bernabe is under pressure from shareholders
to deliver higher returns that could lift the indebted company's
share price from just above all-time lows.
His plan to bring in a new investor last year failed when
the company's biggest shareholder rejected a proposed 3 billion
euro cash injection from Egyptian magnate Naguib Sawiris.
Any new proposal involving Hong Kong-based Hutchison
Whampoa's loss-making Italian unit HG3 is expected to be
informal at this stage, the sources said.
"It's likely that the issue will be discussed at the board
meeting of April 11," one source with direct knowledge of the
situation told Reuters.
"However, there is no formal offer from H3G and any
integration plan is to be considered as a defensive move from
Bernabe, who risks seeing his mandate revoked, most likely when
his term ends in the spring of next year."
Telecom Italia and Hutchinson Whampoa, owned by businessman
Li Ka-Shing, declined to comment.
NEED FOR GROWTH
Telecom Italian, burdened by more than 28 billion euros of
debt, is looking for a strategy to reverse falling margins in
crisis-hit Italy and cooling growth in Brazil, where it owns
mobile phone operator Tim Participacoes.
The Italian company has cut its dividend and turned to
costly hybrid debt to fund much-needed investments to upgrade
its ageing domestic network.
Shares rallied nearly 10 percent late on Thursday on reports
of a possible merger between Telecom Italia and the loss-making
HG3 with analysts saying it would make strong industrial and
financial sense for both parties. They were down 1.4 percent at
1132 GMT on Friday.
"Hutchison is willing to talk and both sides are trying to
work together. But the question will be if an agreement could be
reached on the valuation," said one source familiar with the
situation, who said a valuation of 1.5-2 billion euros for H3G
Incorporating H3G into Telecom Italia, likely to be an
all-share deal, would eliminate a domestic competitor and ease
pressure on falling margins. However, it would also likely raise
The backing of a group of shareholders that own holding
Telco, which in turn controls around 22.4 percent of Telecom
Italia, is critical.
Telco is owned by Spanish telecoms operator Telefonica
, the largest investor, and Italian financial services
groups Generali, IntesaSanpaolo and
Both Mediobanca and Generali are looking to get rid of their
unprofitable Telecom Italia investment, several sources close to
the situation have told Reuters. But they need to find a buyer
willing to pay a high price to avoid booking hefty losses.
After repeated writedowns that have weighed on results,
Telco shareholders have booked Telecom Italia shares at 1.2
euros a share. This is more than twice the current market price
of 0.57 euros per share. At the end of last year, Sawiris'
offered was worth 0.7 euros a share.
"These shareholders could sell, but they need to find a
buyer. Otherwise, at current market prices, they risk being hit
by a significant loss," said one of the sources.
(Writing by Lisa Jucca, Additional reporting by Arno Schuetze
in Frankfurt and Kwok Donny in Hong Kong; Editing by Erica