MILAN Telecom Italia (TLIT.MI) delayed a decision on Wednesday on whether to seek a merger deal with Hutchison Whampoa 0013.HK, buying more time to win over its divided shareholders.
In a statement, Italy's biggest phone company said it would take up to 30 days to assess whether it and Hutchison could bridge differences over valuations.
In a related move it also said the board agreed to meet again on May 23 to decide on the possible separation of its politically sensitive fixed line network, which analysts reckon could be worth 12-15 billion euros.
The debt-laden company, under pressure to improve shareholders' returns, said last month that Hutchison was interested in becoming its biggest investor by merging its 3 Italia mobile business into Telecom Italia and buying additional shares from current key shareholders, which include rival Telefonica (TEF.MC).
Failure to tie up with a cash-rich partner like Hutchison or to sell a stake in its fixed-line network could force Telecom Italia to consider other ways to cut its 28.8 billion euros of debt and fund costly network upgrades.
A special committee set up to assess the potential Hutchison deal acknowledged that there were "no impediments to start a discussion with the other party (Hutchison) in view of the possible completion of the transaction."
Yet, Telecom Italia investors are divided on a potential deal with Hutchison, several sources with knowledge of the situation have said.
"There is no mandate to open merger talks," Telecom Italia board member Tarak Ben Ammar said on Wednesday. "We have decided to continue assessing the situation with the aim of finding a way to improve share prices and create value."
Ben Ammar said all four investors in Telco, a shell company that owns 22.4 percent of Telecom Italia, were in principle not against the deal. These investor paid more than three times the current market price to buy Telecom Italia shares in 2007.
But two sources with knowledge of the situation have said Telefonica (TEF.MC), currently Telecom Italia's biggest investor with a 10.5 percent stake held indirectly through Telco, is strongly against a tie-up.
Telefonica said on Wednesday it was supportive of any action that Telecom Italia, whose credit ratings are one notch above investment grade, could take to improve its value.
Analysts have said Telecom Italia could raise money by a cash call or a sale of Brazil's TIM Participacoes (TIMP3.SA) as an alternative to a deal with Hutchison.
Telecom Italia shares closed down 0.6 percent. The stock had rallied 25 percent from near record-lows since media reports last month of a possible tie-up.
Telco investor IntesaSanpaolo (ISP.MI) has said it is open to a deal while insurer Generali (GASI.MI) and investment bank Mediobanca (MDBI.MI), also in Telco, have some reservations, people familiar with the situation have said. ($1 = 0.7642 euros)
(Additional reporting by Stefano Rebaudo and Francesca Landini in Milan and Clare Kane in Madrid; Editing by Erica Billingham and Greg Mahlich)