Telecom Italia SpA (TIT) is pursuing an alliance with Vivendi SA (VIV) that could lead to the French media company acquiring a significant stake in Italy’s largest phone carrier, people with knowledge of the matter said.
Talks have taken place between Telecom Italia Chief Executive Officer Marco Patuano and Vivendi Chairman Vincent Bollore, said two of the people, who asked not to be identified because the discussions are private. The talks were already under way before Telefonica SA (TEF) -- which competes with Telecom Italia in the Brazilian wireless market -- offered to buy Vivendi’s GVT unit for 6.7 billion euros ($9 billion) earlier this week.
A tie-up between the companies could derail Telefonica’s bid for GVT, a Brazilian Internet provider, with the Spanish offer coming months after Telecom Italia’s Patuano had expressed interest in the unit, the people said. Telefonica put forward the bid after people at the company found out about the negotiations between Telecom Italia and Vivendi, two people with knowledge of the matter said.
Milan-based Telecom Italia has proposed several scenarios to Vivendi and no decisions have been taken, the people said.
One option that has been proposed would see Vivendi receive shares in the Italian carrier in exchange for GVT, the people said. Telecom Italia could also offer some cash, and might seek a capital increase to help raise funds, they said.
Telecom Italia fell 0.1 percent to 81 cents at 9:14 a.m. in Milan, after rising as much as 2.7 yesterday. Vivendi lost 0.4 percent in Paris, and Telefonica slid 0.6 percent in Madrid.
The three groups are already intertwined. As part of the existing bid for GVT, Vivendi would be given the right to buy a stake of about 8 percent in Telecom Italia from Telefonica, which is a shareholder in the company through an investment vehicle known as Telco SpA.
Representatives for Vivendi, Telecom Italia and Telefonica declined to comment.
While Telefonica’s bid is centered on GVT, the broader alliance that Telecom Italia has proposed could include the Italian company distributing content from Paris-based Vivendi’s media assets, which include pay-TV provider Canal Plus. Telecom Italia has sought closer ties with broadcasters to expand in content distribution as call prices slump.
Telecom Italia had its debt rating cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to reverse falling sales. Its net debt amounted to about $27.4 billion at the end of last year, according to its financial report for the first half of the year.
Bollore, Vivendi’s largest shareholder, is unlikely to try and reverse the company’s expansion into media that’s seen it sell its stakes in telecommunications businesses, one of the people said. Two months before he took over as chairman of the company in June, Vivendi agreed to sell SFR -- France’s second-largest phone company -- to Altice SA’s Numericable Group for more than 17 billion euros.
Instead, the billionaire businessman is keen to maintain a presence in the telecommunications industry by taking minority stakes in suitable targets, and is also interested in deals that would help expand Vivendi’s content distribution, the person said.
The 62-year-old Frenchman has close ties to Telecom Italia through his shareholding in Mediobanca SpA, which is also part of Telco. In June, Mediobanca joined Assicurazioni Generali SpA in saying it plans to withdraw from Telco in the next few months, unraveling a shareholder pact after seven years.
“An alliance between Telecom Italia and Vivendi makes sense and would be strategic for both companies,” said Andrea Rangone, a professor of business strategy at Milan’s Politecnico. “Telecom Italia needs a strong media partner to enrich its offer with premium content and Vivendi needs to gain new markets, more than cash.”
Vivendi’s Canal Plus unit, which is France’s largest pay-TV channel and contributes 24 percent of the company’s revenue, has been looking to bolster its business beyond its home market. With a push from Bollore, it said last month it plans to expand in Africa by starting a new channel in the region.
In Brazil, demand for video streaming is boosting revenue at Web-access providers, while Telefonica’s sales are dropping in Spain and Telecom Italia’s sales are plunging in Italy amid intense competition. Sales at GVT expanded 13 percent to 405 million euros in the first quarter, excluding changes in exchange rates.
Responding to Telefonica’s bid this week, Vivendi said that none of its units are for sale, though its board will consider the offer at its next meeting. Vivendi’s board is scheduled to meet at the end of this month, in conjunction with the company’s Aug. 28 earnings release.
Vivendi halted a process to sell GVT last year as it couldn’t agree on a price with suitors including DirecTV, the largest U.S. satellite-TV provider, and a group of private-equity firms including KKR & Co. and Apax Partners LLP, people with knowledge of the matter said then. Vivendi was asking 8 billion euros for GVT, the people had said.
At the time, Vivendi was reexamining its strategy, and had been pressed by investors to sell assets. Since then, it has announced more than $30 billion of asset sales, refocused its business on media operations and unveiled plans to return cash to shareholders, putting the company in a better position should it want to sell more assets.
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