Telecom Italia (TI) has confirmed it has made “preliminary contacts” with Hutchison Whampoa about a possible tie-up with its local mobile unit, 3 Italia.
“The contacts are in such immature and preliminary status that the company cannot further…
Telecom Italia (TI) has confirmed it has made “preliminary contacts” with Hutchison Whampoa about a possible tie-up with its local mobile unit, 3 Italia.
“The contacts are in such immature and preliminary status that the company cannot further comment on the news,” the Milan-based telco said in a statement.
The board will discuss the matter at a meeting on 11 April, the company added.
The brief statement follows media speculation that the TI board plans to meet next week to discuss options for boosting the company’s mobile business, which included a potential merger with 3 Italia – the smallest of the nation’s four mobile operators.
According to the reports, the Italian incumbent would most likely make the purchase in shares as it is reluctant to spend cash.
Italian media have speculated Hutchison could acquire a stake in TI’s largest shareholder, Telco – a grouping of Italian financial organisations and Spanish operator Telefonica.
3 Italia has declined to comment.
Bernstein Research analysts said in an investor note that such a deal could be comparable in scale to Hutchison’s €1.3bn acquisition of Orange Austria from France Telecom and Mid Europa Partners, completed in January.
In their view, the deal would have positive effects on revenue growth for all three remaining operators (which also include Wind and Vodafone Italia) as 3 Italia customers would most likely “leak out”. They expect TI would lose up to half of the smaller operator’s customers.
The analysts said synergies for TI would be significant.
“If we assume that TI keeps half the customers and eliminates the costs of 75% of the network, but loses the roaming fees previously paid by 3, then we estimate 3 could be worth up to €2bn to TI,” they said.
However, they added that a €1.75bn (about 6.5x of 3’s reported EBITDA) would be “more reasonable” given remedies to address antitrust concerns would likely be required. Such commitments would likely be related to spectrum or MVNO licences
The analysts said they believe TI will “continue to drift” if changes to its governance and balance sheet are not made. In their view, an ideal scenario for the company would see China Mobile, which is reportedly interested in European investments, buy out the Italian banks that form part of Telco.
“The best outcome for TI would be to have this followed by a rights issue and to have no controlling stake or better governance,” they said.
Telecom Italia is working to cut debt that, according to the company’s preliminary 2012 results, stood at €28.27bn at the end of the year.
Commenting on the news to TelecomFinance, Moody’s analyst Ivan Palacios noted that there is limited flexibility in TI’s “weakly-positioned” Baa3, negative outlook rating for large, debt-financed acquisitions.
However, like the Bernstein analysts, he said Italian telcos would welcome in-country consolidation as it would reduce the intensity of competition and enable them to take advantage of synergies. He too pointed to the Hutchison-Orange Austria merger as an indication that authorities would likely impose conditions on such a deal.
