Telecom Italia SpA (TIT), the phone company whose debt rating is on the brink of junk, is considering a sale of its wireless towers, according to a person with direct knowledge of the matter.
The carrier is weighing the creation of a company for about 12,000 mobile-phone towers before putting it up for sale, said the person, asking not to be named because the discussions are confidential. The assets could be valued at 500 million euros ($676 million) to 1 billion euros, the person said.
Telecom Italia is taking a leaf from the U.S. playbook -- AT&T Inc. (T) was the latest carrier to seek buyers for its towers - - as the industry consolidates. Telecom Italia directors who gathered yesterday in Milan also discussed a proposal to reorganize Telecom Italia’s domestic units by creating separate companies for its consumer and business services, among proposals Chief Executive Officer Franco Bernabe is using to justify a capital increase to shore up finances, the person said.
“It’s too little too late,” said Robin Bienenstock, a London-based analyst at Sanford C. Bernstein. “They’ve had many different options to reduce their debt over the past few years but they have always shied away from doing the big things.”
Telecom Italia fell 3.4 percent to 57.1 cents at 5:05 p.m. in Milan. The company has a market value of 10.4 billion euros, compared with the 28.8 billion euros of adjusted net debt it reported as of June 30.
A Telecom Italia spokesman declined to comment on the tower-sale plan. Directors are scheduled to meet Oct. 3.
Telecom Italia’s biggest investor group, Telco SpA, is in talks to resolve a six-year shareholder agreement that can be dissolved by the end of next week -- or else it will be extended through 2015 with another exit window in August 2014.
Telco owns a 22.4 percent stake in the carrier. Telefonica SA (TEF), with a 10.4 percent indirect holding, is seeking to iron out differences in valuation amid talks to buy out partners Assicurazioni Generali SpA (G), Intesa Sanpaolo SpA (ISP) and Mediobanca SpA (MB), people familiar with the matter have said.
The partners could also decide to extend the exit window by six months as they continue negotiations, one of them said.
“I’m confident that we will reach an accord finding a common way for the future of Telecom Italia,” Bernabe said in an interview at Milan’s Linate Airport after yesterday’s board meeting, which he called “constructive.”
One option being discussed is for Madrid-based Telefonica to take part in a Telecom Italia capital increase that won’t be matched by other Telco investors, people familiar with the matter have said. However, Telefonica would back a share sale only if the plan comes along with measures to shore up Telecom Italia’s finances such as a disposal of its Brazilian unit, Tim Participacoes SA (TIMP3), in the medium term, the people said.
Moody’s Investors Service in August gave Telecom Italia three months to strengthen Telecom Italia’s balance sheet or else the company could be stripped of its Baa3 rating, the lowest investment grade, said a person with knowledge of the matter.
Telecom Italia will need a capital increase of about 4 billion euros, another person said, asking not to be identified because the discussions are confidential.
“Their share price is too low to easily execute a rights issue and they have few options beyond sale of part or all of the business to boost the balance sheet -- and the only practicable part is the very desirable Brazil,” said Bienenstock.
Telecom Italia sold 1 billion euros of seven-year bonds yesterday, data compiled by Bloomberg showed. The 4.875 percent notes were priced to yield 330 basis points more than the benchmark mid-swap rate.
The average spread on investment-grade bonds in Europe over the swap rate narrowed nine basis points to 79 basis points yesterday, Bloomberg bond index data show.
AT&T’s 10,000 towers could fetch about $5 billion and possible buyers include Crown Castle International Corp. (CCI), SBA Communications Corp. (SBAC) and American Tower Corp. (AMT), a person familiar with the matter said this month.
American Tower, the biggest operator of cellular towers in the U.S., agreed also this month to buy the parent company of Global Tower Partners for $4.8 billion, including debt.