May 8, 2013 / 9:36 AM / in 5 years

Telecom Italia investors seen split on Hutchison deal

MILAN (Reuters) - Shares in Telecom Italia (TLIT.MI) dropped nearly 3 percent after sources said the board will likely put off a decision on whether to start formal merger talks with Hutchison Whampoa 0013.HK at a meeting on Wednesday.

The stock had rallied 25 percent from near record lows since media reports last month of a possible tie-up between Italy’s biggest telecom operator and Hong Kong-based Hutchison.

However, sources with direct knowledge of the situation told Reuters major shareholders are divided on the issue, with main investor and telecoms competitor Telefonica (TEF.MI) strongly opposing a deal that would see Hutchison take control of Telecom Italia.

“Telefonica is doing everything it can to stand in the way of a deal,” a senior source close to the situation said.

A panel of Telecom Italia directors set up last month to evaluate a potential deal will not be able to recommend starting formal talks as the board meets on Wednesday to approve first-quarter results, several sources with knowledge of the situation said on Tuesday.

The panel is expected to suggest asking for more data to properly assess the value of Hutchinson’s 3 Italia division, which would be swapped for a stake in Telecom Italia and which analysts value at 1.5-2 billion euros ($2.6 billion).

The board, which started its meeting at 0730 GMT, is also unlikely to take a decision on the spin-off of Telecom Italia’s fixed-line network, worth an estimated 12-15 billion euros.

ICPBI Equity Research said in a note to clients that quarterly results were likely to show the weakness of Telecom Italia’s home market.

    Telefonica is the largest shareholder in Telco, a shell company that owns 22.4 percent of Telecom Italia.

    Telco investor IntesaSanpaolo (ISP.MI) has said it is open to consider 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.

    Franco Lombardi, head of Telecom Italia small investors association ASATI, said he welcomed a separation of the network and then a deal with Hutchison assuming the tie-up brought benefits for all shareholders and not only for Telco.

    “Telefonica does not want to exit but the Italian banks do. Things must be done in the interest of all shareholders,” Lombardi told Reuters.

    By 0851 GMT Telecom Italia stock was down 2.3 percent at 0.62 euros, half the book value of the shares held by Telco.

    ($1 = 0.7642 euros)

    Additional reporting by Silvia Alisi and Antonella Ciancio; Editing by Erica Billingham

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