Mediobanca Devalues Telecom Italia Holding as Exit Looms

Telecom Italia SpA investor Mediobanca SpA cut the value of its holding by more than half in the carrier that is struggling to meet its debt-reduction target and facing a downgrade to junk.

Mediobanca, the investment bank with a 2.6 percent indirect stake through Telco SpA, wrote down its Telco holding to 53 euro cents a share from 1.2 euros, taking the losses for the year ended June 30 to 320 million euros ($427 million), it said yesterday. Unlike previous writedowns, Mediobanca did it unilaterally without agreeing with other Telco owners: Intesa Sanpaolo SpA, Assicurazioni Generali SpA and Telefonica SA.

The decision paves the way for the unraveling of a six-year pact that put a 22.4 percent blocking minority of Telecom Italia in the hands of the financial investors and Madrid-based Telefonica. They have the right this month to revoke the accord and Telefonica has been seeking to gradually boost its holding, although the stakeholders haven’t been able to agree on a price, a person familiar with the matter has said.

“We are rather seller of our exposure than we are ready to put additional money in Telecom Italia,” Mediobanca Chief Executive Officer Alberto Nagel said yesterday on a conference call. “Generali should leave Telco because exiting the pact would be more coherent with the company’s strategy,” he said, adding he hadn’t received any communication from the insurer.

More Attractive?

Telco’s Italian investors are at the same time discussing a sale of their shares to other potential buyers, another person with knowledge of the matter said, asking not to be named because the discussions are confidential.

Intesa, Generali and Mediobanca were approached by several parties, said that person, declining to identify the suitors. If an agreement isn’t reached with Telefonica, the Italian partners will consider selling the stakes after exiting the Telco agreement, the person said.

“Mediobanca’s writedowns make Telecom Italia even more attractive for potential international investors who would buy a strategic asset in a strategic country like Italy,” said Massimiliano Trovato, a media and telecommunications analyst at Bruno Leoni Institute.

Net Debt

Chairman and Chief Executive Officer Franco Bernabe is racing against time to look for cash to pare more than $38 billion in net debt. Talks in the past year to sell a stake to Hong Kong billionaire Li Ka-shing and Egypt’s Naguib Sawiris have failed, and while Sawiris is still interested in investing in the carrier, he said this month that he’s been put off by Italian newspaper reports that the government prefers Telefonica as Telecom Italia’s owner.

Telecom Italia rose 0.6 percent to 60 cents at 10:25 a.m. in Milan trading. The stock is down 12 percent this year, heading for its a ninth consecutive yearly decline. It has slumped more than 70 percent since Telefonica and the financial investors agreed to pay 4.1 billion euros in 2007 for an 18 percent stake.

Telefonica owns almost half of Telco, giving it an indirect stake of just more than 10 percent in Telecom Italia and making it the single biggest investor. Also strategic for Telefonica is Telecom Italia’s Brazilian business, Tim Participacoes SA with a market value of $10.7 billion and a rival of Telefonica’s local unit.

Brazilian Business

In a statement yesterday, Tim said it had requested information about any potential implications of a change in Telecom Italia’s ownership, and was told that its parent “does not have any information concerning such rumors.”

Telecom Italia is considered the lowest investment grade by the three major ratings companies and is on review for cuts at all of them. The carrier needs a capital increase of at least 3 billion euros to avoid a cut to junk, Andrea Giuricin, an analyst at Milan Bicocca University, predicted this month.

Telecom Italia is among European carriers hurt most by the region’s debt crisis. While Newbury, England-based Vodafone Group Plc has businesses in India and Africa to offset revenue declines in southern Europe and Telefonica operates in the U.K. and Germany, Telecom Italia relies on its home market for almost 60 percent of its sales.

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