Telecom Italia Said to Work With Morgan Stanley on Towers

Telecom Italia SpA is working with Morgan Stanley to sound out interest in its mobile-phone towers in Brazil from potential bidders such as American Tower Corp., according to people familiar with the matter.

Telecom Italia, which has about 7,000 towers in Brazil through its Tim Participacoes SA unit, is also analyzing internally how to sell its about 12,000 wireless towers in Italy, the people said, asking not to be identified because the deliberations are private. The Brazilian assets could raise about 700 million euros ($951 million), one of the people said.

Ei Towers SpA, controlled by former Italian Premier Silvio Berlusconi’s Mediaset SpA; F2i SGR SpA, led by former Telecom Italia executive Vito Gamberale; and Spain’s Abertis Infraestructuras SA are among potential bidders for the Italian towers, according to the people. The towers could be worth 500 million euros to 1 billion euros, Bloomberg reported in September.

Chief Executive Officer Marco Patuano has been pushing to trim Milan-based Telecom Italia’s debt, which was cut to junk by Moody’s Investors Service and Standard & Poor’s after he took over last month. He told Bloomberg News last week that the company can return to investment-grade within three years by reviving its domestic business and cutting its $38 billion in net debt -- more than double its market value.

Officials at Telecom Italia and Morgan Stanley declined to comment on the towers’ sale. Representatives for Ei Towers, F2i Fund, Abertis and American Tower also declined to comment on their potential interest.

Competition fight

“The competition among phone carries will be less and less asset-based and increasingly focused on services and content,” said Cristoforo Morandini, an analyst and partner at consulting firm Between SpA in Rome. Disposing network components to increase efficiency “is a forced choice for mobile operators as well as fixed ones.”

Tim could either sell the towers or form a joint venture for them, CEO Rodrigo Abreu said this week. The carrier competes in Brazil with Madrid-based Telefonica SA -- Telecom Italia’s largest shareholder -- and Mexico’s America Movil SAB.

Buyers, lured by gross profit margins of more than 80 percent, are racing to snap up phone towers in Brazil. That’s pushed prices up as much as 60 percent in the past year to about $200,000 apiece, Jennifer Fritzsche, an analyst at Wells Fargo & Co., said in August.

Completing a tower sale takes time because of complexities involved, Morandini said. A tower typically hosts equipment from multiple carriers, which have lease contracts with the tower’s owner and whose technological requirements may differ.

Recovery Plan

Telecom Italia was little changed at 68 cents at 9:33 a.m. in Milan trading, valuing the company at 12.4 billion euros.

Telecom Italia plans to raise a total of about 4 billion euros through measures including selling the Brazilian and Italian towers, and creating separate companies for its domestic consumer and business services. This month, the Italian company sold its Argentine business to Mexican financier David Martinez for $960 million and issued a 1.3 billion-euro mandatory convertible bond.

Telecom Italia’s adjusted net debt totaled 28.2 billion euros at the end of September. It aims to trim that to less than 27 billion euros by year end and cut the ratio of net debt to earnings before interest, taxes, depreciation and amortization to 2.1 times by 2016, compared with 2.9 times this year.

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