Telecom Italia Is Said to Withdraw Network Spinoff ProposalDaniele Lepido
Telecom Italia SpA plans to terminate a proposed spinoff of its telephone network, removing an option to raise funds for debt reduction, according to three people familiar with the matter.
The company intends to recommend to its board at a Nov. 7 meeting that the plan, which was approved by directors in May, be withdrawn, said the people, who asked not to be named because the deliberations are confidential. The move would officially end a project already stalled by a July regulatory decision.
A separation of Telecom Italia’s copper and fiber network, valued at about 14 billion euros ($19 billion), had been in the making for more than a year and would have provided a way to cut debt via a stake sale, as well as leverage to bargain for lighter regulations. The Agcom authority on July 11 ordered the Milan-based carrier to cut the fees it charges rivals for using its landline grid, forcing the company to put the plans on hold.
The process of the spinoff, championed by former Chief Executive Officer Franco Bernabe, has also slowed after shareholder Telefonica SA agreed last month to gradually increase its influence in Telecom Italia. Madrid-based Telefonica prefers Telecom Italia to turn around a slide in the company’s revenue in its domestic market without carving out the fixed-line grid, said two people familiar with the Spanish carrier’s thinking. They asked not to be identified because the discussions were private.
“While potentially justified on paper, the spinoff plan has faced too much opposition to survive the resignation of its father,” said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University, calling the project Bernabe’s “strategic baby” to give Telecom Italia a sustainable capital structure.
Spokesmen at Telecom Italia and Telefonica declined to comment on the spinoff proposal.
Telecom Italia fell as much as 3.1 percent and closed 1.2 percent lower at 72.6 cents in Milan, valuing the company at
13.1 billion euros. The stock is up 6.3 percent this year after eight consecutive years of decline.
Bernabe resigned on Oct. 3 as executive chairman after clashing with the board over strategic directions. His deputy, Marco Patuano, was put in charge as the carrier seeks a new chairman. Patuano is expected to present on Nov. 7 a turnaround plan that will address how to pare $39 billion in net debt.
Following Bernabe’s resignation, Moody’s Investors Service has cut Telecom Italia’s rating to junk, citing uncertainty over the company’s ability to strengthen its balance sheet sufficiently to offset a decline in revenue and earnings in its domestic market.
Among options to raise cash include a capital increase and a sale of Brazilian carrier Tim Participacoes SA. Telecom Italia has valued its 67 percent stake in Tim at a minimum of $12 billion in preparation for any possible sale, a person with direct knowledge of the matter said this month.
Fully separating a fixed-line network -- considered strategic assets by many governments -- would be unseen among European carriers in recent years. The move would also have involved the transfer of as many as 20,000 positions.
Telecom Italia had discussed a sale of a stake in the new company to state-owned lender Cassa Depositi e Prestiti SpA after a separation, people familiar with the matter said earlier this year. This month, Cassa Depositi’s Fondo Strategico Italiano fund agreed to acquire a controlling stake in Finmeccanica SpA’s power-plant division for about $1 billion.
Cassa Depositi CEO Giovanni Gorno Tempini told reporters today in Milan that the door is “always open” on the future of Telecom Italia’s network. He didn’t elaborate.
Defense and telecommunications are among industries deemed strategic by Prime Minister Enrico Letta’s administration, which has signed a decree giving the state a say in any sale of fixed-line network to a foreign buyer.
A spinoff would take at least six to 12 months and is unlikely to ease pressure on its ratings, Fitch Ratings said the day after Bernabe resigned. Standard & Poor’s, which plans to complete its own review next month, said on Oct. 7 that a downgrade to junk was “the more likely outcome.”