Telecom Italia SpA (TIT), the carrier that is preparing a spinoff of its fixed-line assets, forecasts profit that could value the network at about 14 billion euros ($18 billion), based on internal documents seen by Bloomberg.
Sales at the new company, called Opac SpA, are forecast to slip 0.3 percent this year to 4.6 billion euros from 2012, while earnings before interest, taxes, depreciation and amortization will probably decline 1.6 percent to 2.33 billion euros, according to the documents. The valuation is based on a multiple of six times Ebitda, said a person with knowledge of the matter, asking not to be named because the numbers are confidential.
As Telecom Italia’s board prepares to gather in Rome today to review the spinoff plan, Standard & Poor’s cut the former phone monopoly’s rating to one step above junk, citing Italy’s “tough” economic environment and competition in its mobile-phone business. While the Milan-based carrier is aiming to reach a decision on the spinoff project today, board members may ask for additional time and may call for further meetings in the coming weeks, partly because a separation would involve the transfer of as many as 20,000 positions, or one out of every four workers, the person said.
“Even if the board decides to pursue a deal today there is absolutely no guarantee that one will happen,” Robin Bienenstock, an analyst at Sanford C. Bernstein, wrote in an e-mail. “On the contrary the road to deal completion appears very complex.”
Telecom Italia is considering a sale of an initial 30 percent stake in the new company to state lender Cassa Depositi e Prestiti after a separation, people familiar with the matter said last month. The move could generate cash used to pare net debt -- which at 28.8 billion euros at the end of March is more than double Telecom Italia’s market value -- and reinvest in expanding coverage.
If Telecom Italia proceeds with separation proposal, it would also need to hold talks with Agcom, the country’s telecommunications regulator, and agree on a framework of rules governing the new company to ensure rivals have access to its transmission network, the person said.
A Telecom Italia representative declined to comment on the spinoff plan, earnings projections and valuation.
Telecom Italia shares fell 1.4 percent to 65.3 cents at 2:15 p.m. in Milan trading. Telco SpA, the biggest shareholder with a 22.4 percent stake, wrote down the value of its stake to 1.20 euros a share in February. Its investors include Telefonica, Assicurazioni Generali SpA (G), Intesa Sanpaolo SpA and investment bank Mediobanca SpA.
The carrier is separately evaluating a possible combination of its wireless unit with Hutchison Whampoa Ltd. (13)’s 3 Italia, although Telefonica SA (TEF), one of Telecom Italia’s biggest shareholders, remains skeptical of a transaction, people familiar with the matter have said.
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 unique among European carriers in recent years.
Industry Minister Flavio Zanonato told Parliament yesterday that the government would closely monitor Telecom Italia’s separation plan.
The government is in favor of naming a Cassa Depositi e Prestiti executive to oversee the new company as its chairman and to ensure a level playing field for other carriers, while Telecom Italia could name its CEO, another person said.
“It is a mark of the vulnerability of this company to a debt spiral that they would accept the spinoff of even a minority of their wireline infrastructure with the appointment of a CDP chairman,” Bienenstock said.
S&P’s one-step cut today to BBB-, the lowest investment grade, puts its rating in line with Moody’s Investors Service’s. Credit-default swaps insuring Telecom Italia’s debt for five years jumped as much as 5.4 percent to 269 basis points, the biggest increase in six weeks, signaling a deterioration in creditworthiness.
In its statement, S&P said it expects a “protracted” decline in Telecom Italia’s Ebitda in Italy and an “insuffiencient” credit cushsion from international subsidiaries. The outlook is stable, reflecting the carrier’s “adequate liquidity” and ability to trim debt, it said.
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