Telecom Italia SpA (TI:US), the phone company that’s exploring a separation of its fixed-line assets, is considering a sale of an initial 30 percent stake in a new company to state lender Cassa Depositi e Prestiti, according to two people familiar with the matter.
The carrier may let Rome-based CDP increase its holding over time, said the people, asking not to be identified because the discussions are preliminary and no agreement has been reached. Telecom Italia may transfer as much as 10 billion euros ($13 billion) in debt to the new company, which will own its fixed-line network, and CDP may invest about 2 billion euros initially, said one of the people. Telecom Italia could also consider an initial public offering of the division in the future, another person said.
Telecom Italia’s board is scheduled to meet May 8 to discuss the spinoff project, as the Milan-based company separately explores the feasibility of a merger with Hutchison Whampoa Ltd. (13)’s wireless unit in Italy. Putting the spinoff plan into motion before a potential combination with Hutchison could shorten the regulatory review if and when a deal is reached, said the people.
The network spinoff plan “is a great opportunity to boost investments and competition in Italy,” said Maurizio Decina, a member of Italy’s telecommunications regulatory commission. “For Telecom Italia’s competitors, a single network would also be a guarantee for complete equal access.”
A representative at Telecom Italia didn’t have a comment when reached by Bloomberg News. A CDP spokesman declined to comment.
Telecom Italia rose as much as 2.2 percent to 59 euro cents in Milan, giving it a market value of 10.9 billion euros. The shares rose (TI:US) as much as 3.8 percent to $7.65 in U.S. trading yesterday. Bloomberg News reported the spinoff details after the close of the Italian markets yesterday.
Credit-default swaps insuring Telecom Italia’s debt for five years fell as much as 1.6 percent to 307.1 basis points, reversing earlier gains and signaling an improvement in creditworthiness. The derivatives pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Italy’s former phone monopoly is divesting assets and cutting jobs as it looks for ways to reduce net debt adjusted for some items that topped 28 billion euros last year and to raise money for investments. A split would soften regulatory scrutiny of the carrier and let it focus on faster-growing services such as data and wireless.
Directors last discussed the spinoff proposal at a board meeting on April 11, when they also set up a panel to look into a possible merger with Hong Kong-based Hutchison’s 3 Italia unit. The division has a so-called fair value of 1.5 billion euros, a person familiar with the matter said last week.
In 2008, Telecom Italia created Open Access, a division that manages the grid and offers access to competitors, about two years after BT Group Plc (BT/A) established a similar, fully-owned unit called Openreach. Yet, to fully separate a fixed-line network -- considered strategic assets by many governments -- would be unseen among European carriers in recent years.
“Separating the network would allow Telecom Italia to make more profitable investments in next-generation networks,” said Carlo Alberto Carnevale-Maffe, a professor of business strategy at Milan’s Bocconi University.
Led by Chairman and Chief Executive Officer Franco Bernabe (BNBC), Telecom Italia is about 22.4 percent owned by Telco SpA, whose investors include Telefonica SA (TEF), Intesa Sanpaolo SpA (ISP), Assicurazioni Generali SpA (G) and Mediobanca SpA. (MB)
Telecom Italia’s fixed-line network may be worth 13 billion euros to 15 billion euros, according to Marco Fossati, whose family’s Findim Group SA is Telecom Italia’s second-biggest shareholder.
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