(Adds details on Telco statute, background, fund manager
By Arno Schuetze, Lisa Jucca and Danilo Masoni
FRANKFURT/MILAN April 9 Hong Kong's Hutchison
Whampoa is in talks to buy up to 29.9 percent of
Telecom Italia in a deal that would radically alter
the power base at Italy's leading phone company, two sources
familiar with the negotiations said.
Hutchison is looking at buying out three Italian investors
in Telco, which controls Telecom Italia through a 22.4 percent
stake - which have lost three quarters of their investment since
buying in at more than 2 euros a share in 2007 - and could pay
about double the current market price for their stakes.
That would make Hutchison the largest shareholder in
debt-laden Telecom Italia, whose shares have been languishing
near historic lows due to falling margins in Italy and a cooling
in its other main market, Brazil, where it competes with Spain's
Telefonica, the biggest investor in Telco.
Hutchison would also have to win over the Italian treasury,
which has veto powers over takeover deals.
Under the plan outlined in a memorandum of understanding
presented to Chairman Franco Bernabe, Hutchison would transfer
its local mobile business 3 Italia, which analysts value at
1.5-2 billion euros, to Telecom Italia in exchange for shares.
This would cut the number of Italy's mobile phone operators
from four to three, possibly leading to antitrust conditions
since the new group would control 46 percent of this market.
In addition, Hutchison is offering to buy the combined 12.1
percent owned through Telco by insurer Generali and
banks Mediobanca and Intesa Sanpaolo, at a
price that could be close to a book value of 1.2 euros a share.
"This is on the radar of the involved parties and will be
discussed at an April 11 board meeting. But such a deal will not
be struck in a week, so do not expect any decisions from that
meeting," said one of the two sources. "From embryonic talks to
a fully negotiated deal, that takes months."
The cashflow-rich company accumulated its debt burden in
1999 after a leveraged buyout by businessman Roberto Colaninno,
who only two years later handed over control to a group of
investors led by Pirelli head Marco Tronchetti Provera.
After posting a 2012 net loss of 1.6 billion euros due to
goodwill writedowns, it was forced to cut its dividend and turn
to costly hybrid securities to fund upgrades of its ageing
domestic network and cut debt of more than 28 billion euros.
Hutchison may also buy shares held by other investors, one
of the sources said, adding it was unclear whether Spain's
Telefonica wants to sell its effective 10.3 percent
Under the Telco statute, which could be unwound in August
2014, Telefonica has a right of first refusal over Telecom
Italia shares. But if Telefonica were to tighten its grip over
the Italian group, this may raise antitrust problems in Brazil.
Telefonica paid 2 billion euros for its stake in Telecom
Italia in 2007 in a move aimed at fending off an attempt by
Mexican rival Carlos Slim, head of America Movil, to buy the
former Italian telecoms monopoly. The move was a meant to be
prelude to a full merger with Telecom Italia, but that never
materialised, two sources said.
"Market conditions have profoundly changed since Telefonica
invested in Telecom Italia in 2007. It does not make any sense
for Telefonica to continue to invest in the Italian operator.
But they are not going to exit by simply selling to the
Chinese," said a source close to Telco.
IntesaSanpaolo was not immediately available for comment,
while Mediobanca, Generali and Telefonica declined to comment.
Telecom Italia and Hutchison repeated on Tuesday that contacts
were preliminary. The Italian group added the issue would be
discussed at a Telecom Italia board meeting on Thursday.
Shares in Telecom Italia, worth around 10 billion euros on
the market, were up 4 percent at 0.597 euros: "If they get an
offer at 1.2 euros/share, we believe Telefonica and its partners
in Telco would sell," said Mirabaud analyst Javier Mielgo.
Sources close to Telco said its shareholders had not been
informed, either formally or informally, of the bid details.
"The price, if confirmed, is interesting as it pays a
premium. But this cannot be the only criteria for a decision to
sell," said one of the sources.
Italian shareholders in Telco are looking to offload their
Telecom Italia shares, which have forced them to make multiple
writedowns as they continued to fall in value.
However, they are keen to make sure that any new buyer has a
business plan that won't result in losses of jobs in core market
Italy, where a deep recession has sent youth unemployment to
Last year they turned down a 3-billion-euro cash injection
by Egyptian tycoon Naguib Sawiris at 0.7 euros a share.
"Minority investors have not benefited from the various
ownership changes that happened in the last few years. (A deal
with Hutchison) could be to some extent more exciting for
Telco," said RMJ fund manager Alesssandro Frigerio.
(Writing by Lisa Jucca in Milan, additional reporting by Donny
Kwok in Hong Kong and Robert Hetz in Madrid; Editing by David
Stamp and Will Waterman)