Italian Government May Declare Telecom Italia “Strategic”

Over the last several weeks Telecom Italia SpA (TI) has become the most sought-after telecom for global players looking to branch out into Italy and Latin America. But a telecom looking to grab a foothold in those markets might have to first get approval from Telecom Italia’s host country, approval that could be very difficult for some companies to come by.

Citing the country’s telecom network as “strategic,” the Italian government is rumored to be on the brink of issuing a decree that would give them the ability to block a foreign company from buying out Telecom Italia.  

Numerous global telecoms looking to branch out have expressed interest, like Carlos Slim's Mexican America Movil and AT&T Inc. (T) . However, the overwhelming sentiment is that the government would prefer to keep ownership in Italy, or at least Europe.

Spanish telecom Telefonica is the most likely player on the short list. That company increased their stake in Telecom Italia earlier in the week, buying out Telco, the holding company that controls 22.4 percent of the company.

Barring government interference, Telefonica could gradually increase their ownership of Telecom Italia without resorting to a full takeover bid. In this scenario, Telefonica would secure control of Telecom Italia’s highly sought after South American networks.  

Two weeks prior, shareholders rejected a $1 billion bid from Telefonica for an increased stake.

Telecom Italia has been the subject of takeover rumors for some time. Hong Kong-based Hutchison Whampoa Ltd. had previously begun, then scuttled, merger plans.  Egyptian magnate Naguib Sawiris, who previously made a fortune in the Grecian and Russian telecom markets, also had for a time been an interested party in Telecom Italia, though he has since reportedly withdrawn.

The sudden re-emergence of interest in Telecom Italia coincides with impending blockbuster deals between Verizon Wireless Communications (VZ) and Vodafone plc (VOD) that would see the two companies swap Italian and American stakes, with Verizon paying Vodafone a reported $130 billion.

The deal would be the second largest in the history of capitalism, and would give Verizon full control of their wildly profitable American wireless division.

Global rivals are looking to counter this move with a major buy-in of their own. However, unlike the Vodafone/Verizon deal, whichever telecom wants the Telecom Italia “prize” will probably have to get permission first — if they can get it at all. 

Telecom Italia is up .33 percent to hit $8.05 a share.