| MILAN, April 22
MILAN, April 22 Hutchison Whampoa is
targeting Telecom Italia's mobile business and would
not oppose a spin-off of its fixed-line network, thus removing a
major political hurdle to a deal, a source familiar with the
matter told Reuters.
Italy's biggest phone operator and the Hong Kong-based
conglomerate are in preliminary contacts over a possible tie-up
that would see Hutchison owning 29.9 percent of Telecom Italia
after selling its 3 Italia mobile business to the group and
buying out some other shareholders.
Yet some Italian politicians have voiced their opposition to
the idea of a foreign company ending up owning the country's
fixed line telecoms network, considered a strategic national
asset over which the Treasury has veto powers.
"The Chinese want to do this deal on the third and fourth
generation mobile business. They are not interested in the
fixed-line business," the source said.
If Telecom Italia was to carve out its fixed line network,
"there should not be any political hurdles to the Chinese
possibly taking over control (of Telecom Italia)," the source
Telecom Italia is currently assessing the feasibility of
spinning off the fixed-line network, which analysts value at
between 12 billion euros and 15 billion euros ($16-20 billion).
Analysts at Nomura said earlier in April Hutchison's
interest in Telecom Italia might evaporate if the cash
generating network is not included in any merger deal.
Several sources close to the situation said last week
state-owned fund Cassa Depositi e Prestiti is the frontrunner to
take a significant minority stake in the network business, which
would take on a portion of Telecom Italia's debt, now exceeding
28 billion euros.
Meanwhile a valuation still needs to be agreed for 3 Italia,
considered the weakest of Italy's four mobile operators,
competing against Telecom Italia Mobile (TIM), Vodafone
and Vimpelcom's Wind. Analysts reckon it could still be
worth 1.5 to 2 billion euros.
The source said that a valuation of 1.5 billion euros for 3
Italia was "reasonable".
Taking on 3 Italia makes strategic sense for Telecom Italia
as the deal would generate significant cost synergies and
eliminate a competitor in a sector that is struggling under
falling margins and a deep economic recession in Italy.
The new mobile group, which would end up with a market share
of about 45 percent, will inevitably face antitrust concerns.
But the competition remedies Telecom Italia is likely to face
are not big enough to stifle a deal, the source said.
"This (the antitrust issue) is not a big problem even though
the procedure is complex. The mobile phone market is very
competitive, even without 3 Italia," the source said. "The main
problem is the valuation of 3 Italia."
Telecom Italia declined to comment while a spokesman for
Hutchison in Hong Kong would only say that "contacts between
Telecom Italia and 3 Italia on possible business combinations
are still very preliminary and of an exploratory nature."
A spokeswoman for Italy's competition regulator said the
watchdog does not comment on prospective deals.
The source also dismissed media reports saying Hutchison
would end up with a maximum 10 percent stake in Telecom Italia.
"The Chinese do not want a minority stake in Telecom, they
want control. The 10 percent of Telecom Italia is what 3 Italia
may be worth after an asset swap. Hutchison would buy the rest,"
said the source.
That 10 percent implies a valuation for Telecom Italia
shares of close to 1.2 euros, equivalent to the book value of
the stock in the accounts of the main shareholding consortium
Telco and nearly twice the current market price.
Earlier in April Telecom Italia asked a committee of
directors led by Chairman Franco Bernabe to determine whether to
go ahead with formal merger talks with Hutchison.
The source said a decision on whether to open formal talks
is expected by a May 8 Telecom Italia board meeting on results.
The board is controlled by representatives of Telco, a shell
company owned by Italian banks Mediobanca and
IntesaSanpaolo, Italian insurer Generali and
Spanish telecoms rival Telefonica.
Telco is the biggest shareholder in Telecom Italia with a
22.4 percent stake, followed by investor Marco Fossati with
nearly 5 percent.
(Writing by Lisa Jucca; Editing by Greg Mahlich)