* Chairman, committee of four directors to assess deal
* Formal negotiations have not started-sources
* Telco shareholders divided - sources
* Shares up 1.7 pct
By Lisa Jucca and Danilo Masoni
MILAN, April 11 Telecom Italia has
appointed a panel of directors to consider a proposed tie-up
with Hutchison Whampoa which would make the Hong Kong
group Telecom Italia's top shareholder in return for merging
their local mobile businesses.
After a six-hour board meeting Telecom Italia issued a
statement on Thursday saying it has asked its chairman Franco
Bernabe and four other board members to examine Hutchison's
proposal "in a short period of time" and see whether it is in
its interest to pursue negotiations.
According to sources familiar with the situation Hutchison
would be willing to take a near 30 percent stake in Italy's
biggest telecoms operator by folding its 3 Italia business into
Telecom and buying out controlling Telecom shareholders who are
sitting on big losses on the value of their holdings.
3 Italia is the smallest of the four operators in the
Italian mobile market, vying with Telecom Italia, Vodafone
and Wind, but analysts reckon it could still be worth
1.5 to 2 billion euros.
Under the proposals Hutchison would get shares in exchange
for selling 3 Italia but Telecom Italia said Hutchison had also
set as a condition for the tie-up the purchase of an additional
stake in the enlarged group that would make it the leading
According to sources close to the situation Hutchison would
buy that additional stake from Telco, the consortium of
shareholders which owns 22.4 percent of Telecom Italia and
comprises Spain's Telefonica and Italy's Generali
, Intesa Sanpaolo and Mediobanca.
The sources have said Hutchison is prepared to buy Telecom
Italia's shares from Telco for 1.2 euros per share - the
valuation which Telco holds in its books after repeated
writedowns which is twice the current market value.
However, sources close to Telco told Reuters on Thursday
that a majority of the consortium's shareholders were sceptical
about the tie-up proposal, with Telefonica taking a particularly
critical stance. Telefonica is the largest shareholder in Telco
and has a right of first refusal over Telecom Italia's shares
owned by Telco.
One of the sources said it was difficult to see the business
logic for such a deal and that a tie-up could create antitrust
concerns as the combined group would have a 46 percent market
share in Italy's mobile market.
However, another senior source said there were divisions
among the Telco shareholders.
FIXED LINE NETWORK
Also, it was unclear whether the enlarged group would still
include Telecom Italia's politically-sensitive fixed line
business, valued at between 12-15 billion euros.
Telecom said in its statement that its management would also
consider the feasibility of spinning-off the network, although
it made no direct link between this and the Hutchison proposal.
The company has been in talks for months with Italian
state-backed fund Cassa Depositi e Prestiti over such a
spin-off, which could remove a potential hurdle to any deal with
Any decision on a deal and on the network separation is
further complicated by Italy's political stalemate following an
inconclusive election in February. The Italian treasury holds a
golden share in Telecom Italia that gives it veto powers over
new shareholders and other strategic decisions.
But by merging its Italian unit into Telecom Hutchison would
ease competition pressure in the Italian market, and the
combined group could reap synergies worth 500 million euros,
according to analysts.
And Bernabe is under pressure to find a way to improve
returns for his debt-laden group, which is now struggling
against falling margins in its crisis-hit home market as well as
a cooling in its other main market, Brazil, where it competes
Telecom said Bernabe will be joined on the panel exploring a
possible deal with Hutchison by directors Gabriele Galateri di
Genola, Elio Catania and Julio Linares - representing Telco -
along with independent director Luigi Zingales.
A source close to Telco said the panel was expected to
report back in two to three weeks.
Shares in Telecom Italia closed 1.7 percent higher at 0.6125