(Corrects spelling of company name below sub-head)
By Stefano Rebaudo and Lisa Jucca
MILAN, April 5 Telecom Italia has made
contact with Hong Kong-based Hutchison Whampoa to
study a possible fusion with its 3 Italia unit, the Italian
company said on Friday, sending its shares up 4 percent.
"The contacts are in such embryonic and preliminary state
that the company cannot further comment on the news," Telecom
Italia said in a statement.
It said the matter would be brought before the board at a
meeting scheduled for April 11.
Chairman Franco Bernabe is under pressure to deliver higher
returns and lift indebted Telecom Italia's share price from near
The shares jumped as investors welcomed the latest attempt
to revive the group's fortunes, later paring their gain to stand
up 1.9 percent at 0.59 euros at 1132 GMT.
Burdened by more than 28 billion euros of debt, Telecom
Italian 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.
Bernabe's 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
The Italian company has cut its dividend and turned to
costly hybrid debt to fund much-needed upgrades to its ageing
HURDLES TO TIE-UP
Hutchison Whampoa's loss-making 3 Italia, also known as H3G,
is estimated to be worth between 1.5 billion euros and 2 billion
Incorporating H3G into Telecom Italia, likely to be an
all-share deal, would eliminate a domestic competitor and ease
pressure on falling margins.
Analysts say a tie-up would make strong industrial and
financial sense for both parties. Some warned, however, of
regulatory and political hurdles.
"The antitrust scrutiny may stop the deal or even impose
significant competitive remedies," said one analyst. "Political
opposition may be an even bigger obstacle."
The backing of shareholders that own holding company Telco,
which in turn controls around 22.4 percent of Telecom Italia, is
Telco is owned by Spanish telecoms operator Telefonica
, the largest investor, insurer Generali and
banks IntesaSanpaolo and Mediobanca.
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, 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.
(Writing by Lisa Jucca, Additional reporting by Steve Jewkes in
Milan, Arno Schuetze in Frankfurt and Kwok Donny in Hong Kong;
Editing by Tom Pfeiffer)