Telecom Italia’s Shares Plummet Following Scuttling of Merger Plans

Jacob Harper  |

Struggling telecom company Telecom Italia SpA ($TI) has been trying to change their fortunes for awhile. The company has been battered for years, and carries such a heavy debt load they risk being downgraded to junk status.

It was starting to look like the Italian telecom giant might be righting things after they began working towards a merger with Hutchison Wampoa Ltd., and a spin-off of the company’s dwindling fixed-line business. This would create an opportunity for the group to sell off a chunk of its business to external investors, and inject much needed cash into the company.

But a decision last week by Italian regulators to cut access fees to the Milan-based carrier’s network made any plans on moving forward with the merger unfeasible. And with it, Telecom Italia’s stock has hit the lowest point since the company’s 1997 IPO.

The Italian telecom company has an interesting history: it was created in 1994 by merging several different Italian companies, including Sip, Iritel, Italcable, Telespazio, and Sirm. This created for a time a national telecom monopoly in Italy. Telecom Italia was officially privatized in 1997. Since that time, the company has accumulated a heavy debt burden, reportedly owing $37.6 billion in debt to various creditors.

The company has also struggled to attract international investment. Spinning off the landline part of the business was seen as an essential step in getting the company back on track. But it now appears that that is unlikely. Regulators have told Telecom Italia they need to relinquish some control of its network. Telecom Italia, so far, not open to loosening  its grip.

If they are unable or unwilling to take action, it looks like the company’s stock will continue to dwindle. After hitting its apex in 2005, the stock has been on a steady downward slide. And unless they can accomplish a merger, get more favorable tariffs from the government, or attract international investment, signs point to this trend to continue unabated.

Telecom Italia is down 3.92 percent to hit $6.38 a share. They’re down 29.28 percent on the year, and 67.55 percent since 2008. The company is set to release their second quarter earnings report on August 1.

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