ROME Telefonica (TEF.MC) Chairman Cesar Alierta has offered assurances to Italy over the future of Telecom Italia (TLIT.MI) as his company tightens its grip on its Italian rival.
The Spanish telecoms group reached a deal last month to start a gradual takeover of Telco, the investment vehicle that controls Telecom Italia, prompting a backlash from some Italian politicians and trade unions concerned about national security, job losses and the pace of investment in technology.
But after a meeting with Italian Prime Minister Enrico Letta on Tuesday, Telefonica's Alierta told reporters: "Telecom Italia will remain an Italian company and Telefonica will ensure employment."
Alierta also said that his group would ensure continued investment in fiber-optics and fourth-generation mobile networks at Telecom Italia, which is battling with a debt burden of nearly 29 billion euros ($40 billion) and a deep recession in its domestic market.
Telco, owned by Telefonica and a consortium of three Italian financial groups, holds a 22.4 percent stake in Telecom Italia but effectively controls the company because it appoints the majority of its board members.
Telecom Italia's new chief executive Marco Patuano, appointed after the Telco deal was announced, is reviewing his company's strategy and will present a new business plan at a board meeting on November 7.
Earlier on Tuesday, Italy's Industry Minister Flavio Zanonato said that Italy aimed to safeguard the security of data travelling on Telecom Italia's fixed-line phone network and was not against foreign investments in Italy.
After the Telco deal was announced, Italy said it would extend its powers to veto strategic changes in the energy, transport and telecommunications sectors. It also said it would take steps to lower the threshold for obligatory takeover bids in a move that could complicate Telefonica's Italian ambitions.
However a government source said after the meeting between Letta and Alierta that Rome had no near-term plans to modify laws on company takeovers, reversing previous indications.
Alierta said that he and the Italian prime minister did not discuss new takeover limits or a plan to spin off Telecom Italia's fixed-line network, Italy's biggest telecoms infrastructure, which employs about 20,000 people.
MINORITY INVESTORS CONCERNED
Alierta's comments failed to reassure minority investors in Telecom Italia that have been left out by the Telco deal.
Italian businessman Marco Fossati, who owns 5 percent of Telecom Italia and is seeking to replace the company's current board, voiced concerns that increasing Telecom Italia's share price was not an objective pursued by Telefonica.
The issue is not "whether or not an Italian or a foreign group takes over management of the company but whether control is given to groups that are really concerned with increasing the value of Telecom Italia," he said in an email to Reuters.
Retail investors association Asati said on Tuesday Telefonica should launch a takeover bid on Telecom Italia or pursue a merger valuing the Italian company at more than 1.1 euros a share, a 50 percent plus premium to Friday's price.
Since its privatization in 1997, control of Telecom Italia has changed hands twice in heavily leveraged deals that have brought no benefits to minority shareholders.
Telecom Italia shares ended on Tuesday up 6.1 percent at 0.7195 euros.
($1 = 0.7262 euros)
(Additional reporting by Giselda Vagnoni, Stefano Rebaudo and Giancarlo Navach; Writing by Danilo Masoni; Editing by Anthony Barker)