* Sawiris's proposed capital increase open to other holders
* Sees roughly 3 bln euro increase around current market
* Sawiris backs Brazil deal to get Tel Italia back to growth
* Against proposal to spin off Italian fixed network
* Says Telefonica wants to prevent Tel Italia growing in
By Mirna Sleiman
DUBAI, Nov 27 Egyptian entrepreneur Naguib
Sawiris aims to shake up debt-laden Telecom Italia and
steer it towards expansion in Brazil if shareholders warm up to
his proposal for a 3 billion euro ($3.9 billion) cash infusion.
The billionaire tycoon, who got to know Italy well when he
owned the third-biggest mobile operator Wind, has put on the
table a capital increase that could make him one of the biggest
shareholders in Telecom Italia.
Details on the structure of the proposed transaction are
scarce, but Sawiris told Reuters that he proposed that the
capital increase be open to all shareholders, not just himself,
and that it should be conducted around the current market price
of 0.70 euros per share.
That is likely to draw the ire of other Telecom Italia
shareholders, including Spain's Telefonica and the
three Italian financial institutions who together own 22.4
percent via an unlisted holding company called Telco.
They value Telecom Italia at 1.50 euros per share in their
accounts, and Marco Fossati, whose family's Findim Group SA owns
5 percent of the Italian operator, on Monday said 1.50 was the
"correct price" for any capital increase.
Sawiris, going against a trend of retreating investment in
crisis-hit southern Europe, said he might also bring in some of
his old Wind associates to put Telecom Italia back on the path
"This proposal will provide a more stable financial
structure for Telecom Italia going forward, more growth in Latin
America and Brazil, and improved management through the infusion
of people who have an excellent knowledge of the Italian
market," Sawiris told Reuters.
Sawiris initially approached Telefonica and the
other shareholders in Telco about the possibility of carrying
out a capital increase at the holding company level. He was
rebuffed, so decided to approach the Italian group directly.
"We are willing to participate in the capital increase, but
shareholders have the choice not to get diluted and join in
putting the money," he said.
"If they do not want to, we will come and replace them. But
they will benefit from a higher stock price and a more stable
company and a company that will grow."
It remains to be seen whether his vision for the group will
be shared by Telecom Italia's management and core shareholders.
Telefonica, insurer Assicurazioni Generali, and
banks Mediobanca and Intesa Sanpaolo had the
Sawiris' offer dropped onto them as a bombshell two weeks ago,
insiders have said.
"Sawiris is not a man to go in without being sure he can
drive the strategy," one source familiar with the thinking of
the core shareholders said.
Sawiris told Reuters he was also opposed to a current plan
to spin off Telecom Italia's fixed-line network, which is backed
by some core investors as a way to raise badly needed cash, and
by the Italian government as a means to speed up broadband
"I believe this is a catastrophe," Sawiris said. "If Telecom
Italia does that, they will lose the only differentiator they
have left in the telecom market in Italy."
Telecom Italia is now in talks with an Italian state-backed
investment fund over such a spin-off. Under the plan, the fund
would take a minority stake in the new company in exchange for
Telecom Italia effectively becoming a wholesaler of broadband
capacity to other companies.
Proponents of the spin-off argue the move would help Telecom
Italia reduce debt while accelerating the modernisation of the
woeful Internet infrastructure in Europe's fourth-largest
Telecom Italia's board will meet on Dec. 6 to discuss the
network spin-off and whether to bid for Vivendi's GVT, a
broadband specialist in Brazil, to complement its TIM Brasil
mobile business unit in the fast-growing market.
GVT's owner, Vivendi, is seeking up to 7 billion
euros for GVT, which provides fixed telephone, broadband, and TV
services in 120 Brazilian cities. Preliminary bids are due in
December, sources have told Reuters.
Sawiris is waiting in the wings, though he says he has not
had any direct contact from Telecom Italia since sending a
letter of interest two weeks ago.
However, advisers from both sides - Lazard for Sawiris and
Rothschild for Telecom Italia - have been communicating,
according to people familiar with the matter.
Meanwhile, sources close to the telecom group's shareholders
have complained of a lack of detail in the Sawiris proposal.
Nuno Matias, a telecoms analyst at Espirito Santo bank, said
while Sawiris's arguments about seeking growth in Brazil via the
GVT takeover were persuasive, the tycoon could face an uphill
battle getting the board and shareholders onside.
"Sawiris isn't alone; there are controlling shareholders of
Telecom Italia, and they have their own interests," he said.
"If Telecom Italia strengthens in Brazil then it sets up a
conflict with Telefonica."
Sawiris pointed out that he tried talking to Telefonica.
"I met with them, but my feeling is that they are
conflicted. They are happy where they are today holding Telecom
Italia as a hostage and preventing it from growing into Latin
Telefonica and Telecom Italia are the number one and number
two players in Brazilian mobile, respectively, and also compete
in Argentina. The conflict means that Telefonica cannot take
part in board deliberations at Telecom Italia over the Latin
Telefonica's Chief Financial Officer Angel Vila said last
week that the group wanted to remain a long-term shareholder in
Telecom Italia, and opposed a capital increase.
Telecom Italia has made debt-cutting a priority since late
2008. Cost cuts and asset sales have trimmed net debt more than
4 billion euros to 29.5 billion at the end of September.
Morgan Stanley predicted its net debt was likely to stand at
27.8 billion euros at year-end, or 2.7 times earnings before
interest, tax, depreciation and amortisation (EBITDA), above
sector averages and in the warning zone for rating agencies.
Sawiris, who sold Wind to Vimpelcom last year, wants to
re-enter Italy by investing in the incumbent operator, betting
on low valuations and turnaround potential in old-world
"I've worked in Italy for five years and what I've learned
that very few investors have the insight on what is the real
story in Italy," Sawiris said.
($1 = 0.7713 euros)
(Additional reporting by Leila Abboud in Paris and Lisa Jucca
in Milan; Editing by Will Waterman)