Italy to raise Telecom Italia stake, eyes single network

ROME (Reuters) - Italy’s state lender CDP has decided to raise its stake in Telecom Italia, a move that could pave the way for a possible merger of the phone group’s fixed line network with that of smaller rival Open Fiber.

FILE PHOTO: Telecom Italia's logo at its headquarter in Milan, Italy, May 25, 2016. REUTERS/Stefano Rellandini/File Photo

Cassa Depositi e Prestiti, which already has a 5 percent stake in Telecom Italia (TIM), said on Thursday its board had approved the purchase of additional shares but gave no further details. A source close to the matter said CDP could raise its stake to up to 10 percent in the next 12 months.

TIM shares rose more than 6 percent in early trade.

The company has been caught up since early last year in a tug-of-war between shareholders French media group Vivendi and activist fund Elliott over how to revive Italy’s biggest phone group, an underperforming business saddled with 25 billion euros ($28.7 billion) of debt.

TIM’s shares have lost more than 30 percent since the start of last year, partially due to the governance battle between its top two shareholders, which other investors say is distracting top management from fixing the company’s operational problems.

The CDP, controlled by the Italian treasury, has become a key player in that power battle after buying its initial stake in TIM last April, citing a need to safeguard Rome’s interest in a company it sees as strategic.

CDP also has a 50 percent stake in Open Fiber, a TIM rival which is building an ultrafast fiber broadband network in the country, and the planned stakebuilding could lead to further cooperation between the two companies.

Rome’s populist government has put the creation of a fast broadband network at the heart of its industrial policy and is keen for TIM and Open Fiber to combine their networks under public control.


Earlier this month CDP’s chief executive said he backed the idea of creating a single broadband network, a project also supported by Elliott.

“CDP could play a key role in the process aimed at having cooperation in fiber deployment, potentially getting to the implementation of the single-network project,” Mediobanca analysts said in a note.

Vivendi, TIM’s top shareholder with a 24 percent stake, has said it does not want TIM to lose control of its network, its biggest asset.

However, the French investor’s weight could be weakened if others holding sufficient shares join forces, analysts said.

Vivendi could not immediately be reached for comment.

Elliott, which owns around 10 percent of TIM, wrested board control from Vivendi in May after accusing the French group of serving only its own interests and promising a massive shake up at the former state phone monopoly.

The two adversaries will face off again on March 29 when shareholders will vote on Vivendi’s request to replace five directors appointed by Elliott.

Another analyst said a significant stake increase by the CDP in the short term could foster a quicker solution to the network issue and help smooth TIM’s governance issues ahead of the March shareholder meeting.

Media reports suggested Elliott might raise its own stake to around 14 percent ahead of the March meeting. The fund declined to comment on the speculation.

In November, Luigi Gubitosi, one of the Elliott-appointed directors, was named TIM’s new CEO, replacing a Vivendi ally.

Next week Gubitosi will present a new business plan in which he is expected to pursue the activist agenda proposed by Elliott.

Additional reporting by Mathieu Rosemain in Paris, Writing by Agnieszka Flak; Editing by Giselda Vagnoni/Mark Potter and Emelia Sithole-Matarise