Telecom Italia Shareholders Reject $1 Billion Bid from Telefonica

Jacob Harper |

The ongoing saga for the fate of the rapidly failing Telecom Italia SpA (TI) took another turn on Sept 17, when shareholders rejected a $1 billion bid from Spain’s Telefonica to buy out their stakes. Telecom Italia has become a target for telecoms the world over, as the company has a major presence in both Southern Europe and Latin America, The latter is of particular interest to Telefonica, a market in which Telecom Italia is a direct competitor, though Telfonica’s stake does not look to increase for the time being.

On the same day, Mediobanca SpA wrote down a $427 million loss in their stake in Telco, the controlling interest in Telecom Italia. This paves the way for the Telco pact between Telefonico and several other European corporations to unravel, and thus make Telecom Italia even more attractive to an outside buyer. While the Italian government is rumored to prefer Telefonica to be the buyer of Telecom Italia, it now appears that the market for the long-suffering Italian telecom with both a massive network and massive debt is wide open.

Telecom Italia desperately needs money to pare down its $38 billion in debt. They happen to be looking for a buyer at an especially opportune time. The major global telecoms are in the process of repositioning following the expected $130 billion blockbuster deal between Verizon Communications Inc. (VZ) and Vodafone Group plc (VOD) that will see the two trade interests in America and Italy.      

"Telecoms are very interesting at the moment, the sector is moving a lot, and when you have one big deal, more usually follow," TJM Partners sales trader Lucas Roux de Luze, said, also adding that a de-escalation in Syria has calmed investor fears.

Following the Vodafone/Verizon shakeup, several major players have simultaneously expressed interest in swooping on Telecom Italia. While shareholders seem to be revisiting a takeover, the company is currently under review to be downgraded to junk status, and is in desperate need of a savior.

Despite their debt problems, the company still retains a wide reach throughout two continents. Interested parties have included Telefonica, Mexican telecomg giant American Movil and AT&T Inc. (T) , who are looking to expand into Europe. Egyptian magnate Naguib Sawiris, a major player in Africa and Russia, is reportedly out of the talks. Earlier in the summer, a merger with Hong Kong-based conglomerate Hutchison Whampoa fell through.

Telecom Italia was down 1.37 percent to hit $7.94 a share. The former Italian government-sanctioned monopoly has lost money for nine straight years.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TI Telecom Italia S.P.A. New 7.67 0.22 2.95 106,834
VOD Vodafone Group Plc 24.44 0.14 0.58 7,678,150
VZ Verizon Communications Inc. 49.81 -0.06 -0.12 10,650,716
T AT&T Inc. 38.61 -0.27 -0.69 16,102,161
PTTGF Pt Tiga Pilar Sejahtera 0.09 0.00 0.00 0

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