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AT&T in Talks Over Telecom Italia Investment

Posted on: Tuesday, 3 April 2007, 06:00 CDT

Telecoms giant AT&T Corp has confirmed it is conducting negotiations to purchase a stake in a holding company of troubled Italian carrier Telecom Italia SpA.

AT&T said Monday that it and America Movil, the largest mobile operator in Latin America controlled by Mexican billionaire Carlos Slim Helu, are talking with Italian tire company Pirelli & C SpA, which controls 80% of the holding company Olimpia. The Benetton family holds the other 20% of Olimpia.

Olimpia is a strategically important company in the complex holding structure of Telecom Italia, as it has a 18% stake in the Italian carrier and appoints the majority of its board.

AT&T and America Movil are talking with Pirelli to acquire a third (each) of its 80% Olimpia stake. The valuation of the stakes in Olimpia are based on a price per Telecom Italia share equal to 2.82, euros ($3.77) minus the net debt of Olimpia on the closing date of the transaction.

Telecom Italia has a market capitalization of about 40bn euros ($53.5bn) and has 24 million fixed-line, 57.9 million mobile, and 8.6 million broadband connections. It has broadband interests in the Netherlands, France and Germany, and wireless in Brazil (TIM Brazil).

Pirelli is controlled by former TI chairman, Marco Tronchetti Provera, who upset the Italian government last year when he proposed selling off the mobile arm as a way to reduce debt as a way to reduce debt. Provera quit in September 2006 and the carrier said last month that it was looking to overseas operations as the focus of expansion.

At the same time Telecom Italia scaled back its growth forecasts for the year in the face of regulatory restraints and rising competition. Telecom Italia's forecast for its home market is bleak and it predicted a decline in revenue of between 2.5% and 3.5%, with fixed-line revenue falling by between 2.5% and 3.5%, while mobile revenue will be down between 2% and 3%.

In 2006, net income fell 6.2% to 3bn euros ($3.9bn), while revenue rose 42.7% to 22.7bn euros ($29.8bn).

Since Provera's confrontation with the Italian government, he has been seeking an exit from the carrier. Recent talks with two groups of Italian banks have broken down, and talks with the Spanish incumbent Telefonica SA have failed to result in a deal.

Speaking to Computer Business Review, Niall Hickey, director of communications, EMEA, at AT&T, said a potential deal for a stake in Olimpia would be complementary to AT&T's global strategy. "AT&T has a history with partnering with companies around the world," Hickey said. "We have a good track record working with companies and we have the financial wherewithal as well as a good global presence."

While he admitted that a deal would not result in a direct stake in Telecom Italia, he did point out that it would complement AT&T's current activities and the delivery of services to Italian business customers.

Deadline for the talks to conclude is the end of April, and the bid is contingent on America Movil also bidding for a stake in Olimpia.

Source: Datamonitor

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