Italy Said to Weigh Move to Block Potential Tim Brasil Deal

Italy is discussing a measure to give the government power to block an eventual sale or breakup of Telecom Italia SpA (TIT)’s Brazilian unit, according to three people with knowledge of the matter.

Prime Minister Matteo Renzi’s administration may broaden a “golden power” decree adopted in June that gives the government the right to veto deals in industries deemed to be of national interest to include communication networks owned by Italian companies abroad, the people said, who asked not to be identified because the discussions are confidential.

Telecom Italia shares fell as much as 4.1 percent in Milan and Tim Brasil dropped as much as 4.7 percent in Sao Paulo. Italian officials are concerned that a possible transaction involving the network of Tim Brasil (TIMP3), the country’s second-largest wireless carrier, could jeopardize a strategic asset overseas, the people said.

Such a move would be the clearest sign that Telecom Italia has the state’s backing amid disagreements with its top shareholder, Telefonica SA (TEF) of Spain, over Brazil. While Telecom Italia Chief Executive Officer Marco Patuano is in favor of keeping and expanding Tim, Telefonica and Oi SA are exploring a plan to break up the company, people familiar with the matter said in May.

Photographer: Antonio Scorza/AFP via Getty Images

Telecom Italia shares fell as much as 4.1 percent in Milan and Tim Brasil dropped as much as 4.7 percent in Sao Paulo. Close

Telecom Italia shares fell as much as 4.1 percent in Milan and Tim Brasil dropped as... Read More

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Photographer: Antonio Scorza/AFP via Getty Images

Telecom Italia shares fell as much as 4.1 percent in Milan and Tim Brasil dropped as much as 4.7 percent in Sao Paulo.

French Lesson

A spokeswoman for Renzi’s office had no comment. A spokesman for Milan-based Telecom Italia declined to comment.

“It is protectionism,” said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris.

Italy isn’t the only European country seeking to intervene in company mergers and acquisitions. The French government last month unveiled plans to acquire a stake in energy and transport company Alstom SA alongside General Electric Co. to prevent a takeover by the American company. Before that, it passed legislation extending its ability to block foreign attempts to buy French companies in energy, transport and health care.

Telefonica will become Telecom Italia’s single largest shareholder when an investor group that owns 22.4 percent of the carrier is disbanded later this year. Telefonica, part of that group called Telco SpA, would own a direct stake of about 15 percent.

Telefonica, which controls Brazil’s largest carrier, gave up board representation at Telecom Italia last year to avoid a conflict of interest in that country. That wasn’t enough. In December, antitrust regulators said Telefonica must reduce its holdings there or persuade Telecom Italia to sell Tim.

Photographer: Alessia Pierdomenico/Bloomberg

Telecom Italia Chief Executive Officer Marco Patuano is in favor of keeping and developing the compnay's Brazilian unit Tim Brasil. Close

Telecom Italia Chief Executive Officer Marco Patuano is in favor of keeping and... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

Telecom Italia Chief Executive Officer Marco Patuano is in favor of keeping and developing the compnay's Brazilian unit Tim Brasil.

Share Fall

Telecom Italia fell 1.5 percent to 91 euro cents at the close in Milan. Tim Brasil, which trades under the name Tim Participacoes SA, erased losses and rose 0.9 percent to 12.56 reais at the close in Sao Paulo. The company has a market value of about 29.5 billion reais ($13.3 billion). Telecom Italia owns 67 percent of the business.

Oi SA (OIBR4) rose 1.1 percent to 1.78 reais and Telefonica Brasil SA rose 0.1 percent to 44.96 reais.

“If the Italian government has this power, it will make things more difficult for Brazil.” Alex Pardellas, an analyst at CGD Securities in Rio de Janeiro, said in a phone interview.

If Italy’s government ultimately approves such a measure, it could draw scrutiny from European regulators, said one of the people.

Last month, the state extended its veto powers for transactions involving the Italy’s entire telecommunications network, in addition to grid access.

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; Manuel Baigorri in London at mbaigorri@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Dan Liefgreen

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