September 1, 2014 / 12:20 PM / 6 years ago

UPDATE 2-Telefonica to exit Telecom Italia after Brazil deal

* Telefonica offered Vivendi remaining Telecom Italia shares

* Exit follows Brazil regulatory concerns

* Could use treasury stock to finance GVT deal - chairman (Adds regulatory issues and shares)

By Andrés González

SANTANDER, Spain, Sept 1 (Reuters) - Telefonica plans to exit Telecom Italia once the Spanish group has finalised the purchase of Vivendi’s Brazilian broadband business GVT, ending a long-standing shareholding and easing competition concerns in Brazil.

Tense relations between the Spanish and Italian companies came to a head last week when Telefonica beat Telecom Italia to buy GVT, a blow for the latter that could make it a takeover target in a fast-consolidating industry.

“After the GVT operation the message is clear, we don’t want to stay in Telecom Italia,” Telefonica Chairman Cesar Alierta told journalists after attending a telecoms conference in Santander, northern Spain.

Telecom Italia declined to comment.

Telefonica has taken steps in recent months to reduce its stake in Telecom Italia, which it owns through holding company Telco. It will hold 8.3 percent of voting rights in the company once it converts a three-year bond exchangeable into Telecom Italia shares.

It offered Vivendi those remaining rights as part of its cash and shares bid for GVT last week, worth 7.45 billion euros ($9.8 billion), signalling that it was ready to cut ties with Telecom Italia.

Telefonica had said it would issue 3.4 billion euros in new shares to help to finance the cash element of the GVT deal, but Alierta said it could also use shares held as treasury stock if market conditions make a capital increase too difficult.

“We’re not worried about financing the GVT deal. Obviously, we can use our treasury stock for certain things ... and if markets get hysterical because Russian tanks are entering Ukraine, that’s not our shareholders’ fault,” he said.

European markets are eyeing escalating tensions in Ukraine, which on Monday reported that its forces were again under fire from Russian tanks.


Exiting Telecom Italia would help the Madrid-based group to appease regulators over competition concerns in Brazil, its second-largest market behind Spain in terms of cash generation.

Telefonica controls Vivo, Brazil’s leading mobile operator, which directly competes against Telecom Italia’s local unit TIM Participacoes.

In December Brazilian antitrust watchdog CADE gave Telefonica 18 months to either sell its interest in Telecom Italia or seek a new partner for Vivo.

Italy’s Intesa Sanpaolo, Mediobanca and Generali formed holding company Telco in 2007 with Telefonica, aiming to fend off a takeover bid for Telecom Italia by U.S. group AT&T and Mexican tycoon Carlos Slim.

While the move, which was strategic for Telefonica, succeeded in preventing a North American takeover of Telecom Italia, it turned into a loss-making investment.

Vivendi is now likely to accept the chance to take from Telefonica 5.7 percent of Telecom Italia shares, or 8.3 percent of voting rights, sources have told Reuters, and may also end up becoming the largest investor in the Italian company.

Analysts have speculated that Vivendi could later buy out the Italian investors, too.

The Italian partners in Telco have also said they would eventually sell their shares in Telecom Italia, which amount to a combined 7.6 percent stake.

By 14:22 GMT Telecom Italia shares were down 1.1 percent in Milan at 0.865 euros, underperforming an 0.2 percent drop for the European telecoms index. Telefonica was down 0.3 percent in Madrid.

When Telco was formed, Telecom Italia shares traded as high as 2.475 euros, three times the current value, before the debt-laden Italian company was hit by Italy’s prolonged recession. (1 US dollar = 0.7612 euro) (Additional reporting by Danilo Masoni in Milan and Robert Hetz in Madrid; Writing by Tracy Rucinski; Editing by Mark Potter and David Goodman)

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