Nov. 5 (Bloomberg) -- Telecom Italia SpA, Italy’s biggest phone company, said third-quarter earnings dropped after writing down the goodwill of the HanseNet Telekommunikation GmbH unit, which it’s selling to Telefonica SA.

Net income fell to 201 million euros ($299 million) from a restated 626 million euros a year earlier, the Milan-based company said in a statement today. That includes a goodwill writedown of 540 million euros “aimed at aligning HanseNet’s book value to its estimated sale value.” Revenue fell 5.6 percent to 6.77 billion euros, excluding HanseNet, which is counted as a discontinued operation. The company confirmed its annual earnings target.

Telecom Italia agreed to sell HanseNet, its German broadband unit, to Telefonica SA for 900 million euros as part of a plan to dispose of non-core assets to bolster finances. The sale will “allow Telecom Italia to accelerate the reduction of its net debt,” Chief Executive Officer Franco Bernabe said in the release.

HanseNet’s “price tag is higher than the level speculated in the press,” Saeed Baradar, a telecommunications sales specialist at Societe Generale SA, wrote in an e-mail to clients after the release. He added the sale will have a “positive impact on gearing.”

Telecom Italia rose 2.1 percent to 1.143 euros in Milan.

Net Debt

Analysts at Cheuvreux said in a note that HanseNet’s “valuation is below market multiples and recent transactions.”

Telecom Italia said that HanseNet’s sale, which it expects to complete in the first quarter of 2010, makes “further tapping of the bond market unnecessary.” Telecom Italia’s net debt rose to 35.5 billion euros at the end of September from 35.2 billion euros at the end of June. The company forecast adjusted net borrowings will fall to about 34 billion euros at the end of this year, without taking into account the effect of the HanseNet sale.

Earnings before interest, tax, depreciation and amortization, excluding currency moves and acquisitions or disposals, or organic Ebitda, fell to 2.99 billion euros from 3 billion euros a year earlier. The measure doesn’t include HanseNet.

Telecom Italia said organic Ebitda at the domestic unit will be 9.9 billion euros to 10 billion euros this year, while the measure at the Brazilian business will be about 3.6 billion reais ($2.09 billion), matching forecasts given in August.

Telefonica and partners Mediobanca SpA, Assicurazioni Generali SpA and Intesa Sanpaolo SpA own a controlling stake in Telecom Italia through holding company Telco SpA.

To contact the reporters on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

Last Updated: November 5, 2009 11:47 EST