DEALWATCH: Telefonica Tepid On TI Despite Italy Chatter
February 16 2010 - 9:56AM
Dow Jones News
Italian investors, bankers and politicians may be pushing hard
for a quick takeover of Italy's biggest telecommunications company
by a much bigger Spanish rival, but if it is up to the alleged
acquirer, they won't get any satisfaction anytime soon.
People with knowledge of Telefonica SA's (TEF) plans say the
Spanish telecoms behemoth isn't too excited about taking over its
smaller Italian peer Telecom Italia SpA (TI). While in the long
term, such a deal could make sense, these people say it's too early
in the game for a costly transaction that would involve significant
political and financial risk.
Speculation about a potential tie-up has been rife in the
Italian media in recent weeks, causing big fluctuations in Telecom
Italia's share price, although it has been conspicuously absent in
Spanish newspapers. Telecom Italia, which is suffering under a
EUR34 billion debt load and is strapped for cash, was long ago
relegated to a second-tier player in Europe, lagging behind faster
growing rivals like Vodafone Group PLC (VOD), Telefonica, France
Telecom SA (FTE) and Deutsche Telecom AG (DT).
It owns an outdated telecommunications network in need of
upgrades in a market that is seen as mature, with limited growth
potential. Telefonica's main hopes for growth remain in Latin
America, where penetration rates are still low enough to pick up
customers for its mobile and broadband businesses.
If anything, Telefonica would be interested in buying TI's
successful Brazilian venture, TIM Participacoes SA (TSU), after its
recent failed attempt to take over broadband operator GVT there,
the people familiar with the matter said. Brazil's leading telecom
operator, Vivo Participacoes (VIV), is jointly controlled by
Telefonica and Portugal Telecom SGPS SA (PT).
Telefonica bought a stake in Telecom Italia in 2007, through a
holding company that it owns together with Italian banks Mediobanca
SpA (MB.MI), Intesa Sanpaolo SpA (ISP.MI) and insurer Generali SpA
(G.MI). The holding company, Telco, owns 22.4% of the company,
making it the dominant shareholder.
But as Telecom Italia's revenue slumped and the company suffered
under its debt load, the value of Telco's shares have slipped to
60% below the price at which they were acquired.
That may explain why some bankers close to Telecom Italia have
also been talking up the possibility of a merger in recent weeks,
these people say.
Although Telefonica has conducted some selective acquisitions
recently, it has also been cutting expenses and capital
expenditures over the last year in response to weak European
markets to honor its dividend commitments.
-By Christopher Bjork, Dow Jones Newswires, +34 91 395 81 23,
christopher.bjork@dowjones.com
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