Telefónica Agrees Deal to Raise Telecom Italia Stake

Telecom Italia’s Italian shareholders have struck a deal with Telefónica that will see the Spanish operator gradually increase its stake in Italy’s largest telecoms provider through their shareholder pact.

The deal, which follows months of wrangling by Italy’s Mediobanca, Generali and Intesa Sanpaolo, will allow the Italian financial investors gradually to exit Telco, the holding company that controls around 22 per cent of Telecom Italia, while Telefónica increases its holdings.

The agreement clearly defines the available windows to exit Telco – the first in June 2014, the second in February 2015 – and reduces capital risks deriving from the potential future disposal to Telefónica, Generali, the largest shareholder after Telefónica, said in a statement.

In a multi-step deal, Telefónica will initially own 66 per cent of Telco but without voting rights, Generali will own 19.3 per cent and Mediobanca and Intesa Sanpaolo will each own 7.3 per cent.

However, starting next year, Telefónica will increase its stake in Telco to 70 per cent, making it by far the largest single shareholder in the Italian group, which is struggling under net debt of close to €30bn in difficult operating conditions.

The deal also lays out two windows – in June 2014 and again in February 2015 – when the Italian shareholders in Telco can withdraw from Telco, providing Telefónica with the basis for a creeping takeover of the Italian company.

Telco’s Italian shareholders have been struggling to exit the holding company for several months after taking a hit to their balance sheets from their exposure to Telecom Italia’s falling share price. They bought into Telco at about €2.80 a share, and have already written down the value of their stakes to €1.20. But Telecom Italia is now trading at €0.60 per share. Worsening their pain, the banks were also exposed to Telco as lenders.

The deal with Telefónica will also see the Spanish operator taking on Telco debt. With Telefónica’s acquisition of part of the shareholders’ loan, Mediobanca said it halved its debt exposure through the loan to €43m in exchange for Telefónica shares, it added.

Mediobanca said that as a result of the deal with Telefónica it had realised a gain of €60m to be booked to the accounts for the first quarter of the new financial year.

Generali in a statement said that the net impairment of the Telco stake would be around €65m and the hit would be taken in the third quarter of 2013.

Source: The Financial Times