* Decision on possible TI Media sale by Feb. 7-source
* Clessidra ready to consider takeover bid-source
* TI Media may need capital increase-press (Adds company statement)
By Claudia Cristoferi and Danilo Masoni
MILAN, Jan 17 (Reuters) - Telecom Italia will extend talks with bidders for its television unit Telecom Italia Media, the company said on Thursday, after it dismissed initial offers as disappointing.
The former telecoms monopoly had hoped to sell its 77.7 percent stake in the loss-making company by the end of 2012 to help cut debt of 29.5 billion euros ($39 billion) and focus on its core telecoms business, but has been hampered by low bids.
Telecom Italia said the bids it had received “reflected the negative economic and balance sheet trend of TI Media”. Its TV unit is thought by analysts to have lost 100-120 million euros in 2012, and a press report in La Repubblica daily on Thursday said the company may need a recapitalisation, which would be the third in six years.
The group led by Chairman Franco Bernabe said in a statement on Thursday that it aimed to wrap up talks in order to receive final and binding offers, but it did not name any bidder or set a time frame.
A source with knowledge of the matter said earlier on Thursday that talks would be extended for three weeks with private equity fund Clessidra and media firm Cairo Communication - whose bids Telecom Italia previously rejected as too low.
“No decision was made. The discussions continue with both potential buyers,” the source said, who was leaving a Telecom Italia board meeting. “A decision will be made by Feb. 7.” On that date, Telecom Italia’s board meets to approve full-year results for 2012 and an update of its strategic targets.
A source close to Clessidra said on Thursday evening the fund “acknowledged that there was still a little chance of a deal”.
Sources had told Reuters on Wednesday that neither Clessidra nor Cairo had improved the binding offers first presented in December and considered too low by Telecom, raising the prospect of a sale not going ahead.
While not selling its TV unit would make little difference to Telecom Italia’s debt levels, a failed sale would mark another setback for the group, which late last year rejected a 3 billion euro investment offer by Egyptian tycoon Naguib Sawiris.
Telecom Italia is also looking to divest a stake in its decades-old copper network this year, which could be worth up to 15 billion euros, in order to pay down some debt and invest in faster broadband.
Earlier on Thursday, a source close to Clessidra said the fund would consider a full takeover bid for Telecom Italia Media, including the 22 percent listed on the Italian bourse, if requested to so but would not raise its price.
Its offer values the TV company at 330-380 million euros.
The offer by Clessidra, which has teamed up with fellow private equity fund Equinox, would mean that Telecom Italia would make no capital gain on the sale of the TV unit.
Clessidra is seeking control of Telecom Italia Media’s two cash-burning television channels and profitable broadcast network operator, while the other bidder, Cairo, is interested only in the TV business.
A takeover bid is mandatory in Italy for any investor acquiring more than 30 percent of a company, but this can be waived if the deal is considered a rescue operation.
Telecom Italia Media’s La7 channel has gained audience share thanks to popular talk shows but there are doubts over how long it can sustain the pace amid an economic recession and cut-throat competition.
Telecom Italia values its stake in the company at 176 million euros, or just under 0.16 euros per share. Shares in Telecom Italia Media closed up 1.3 percent at 0.158 euros, off initial highs as excitement over a possible takeover bid faded.
“The possible failure of the sale process would be a slight setback in Telecom Italia’s deleveraging process but not such that we believe it would create additional problems for its refinancing or ability to maintain its current credit rating,” Espirito Santo analysts said in a note.
Telecom Italia is targeting cash flow generation of more than 22 billion euros in 2012-2014, against debt maturities of 15.4 billion euros over the same period and an annual dividend payout floor of 900 million euros.
Rating agency Fitch, which has a BBB rating on Telecom’s debt with a negative outlook, said in November that the group’s end-2013 net debt target of 25 billion euros may be difficult to achieve. (Additional reporting by Stephen Jewkes, Francesca Landini, Antonella Ciancio and Danilo Masoni; Writing by Silvia Aloisi; Editing by Sophie Walker and Paola Arosio)