Telecom Italia’s fate lies in the hands of French tycoons http://on.ft.com/1Rv6b8j
Shares spike as rival billionaires put group’s future in play
Takeover speculation has pushed shares in Telecom Italia near a seven-year high after two French billionaires increased their stakes last month to become the group’s largest investors.
Vivendi, the French telecoms group controlled by Vincent Bolloré, has spent more than €3bn in recent months ramping up its stake to more than 20 per cent of the group, and has not ruled out further purchases to just below the 25 per cent threshold that would trigger a mandatory bid for the whole company.
Then last week, Xavier Niel, who controls French mobile and internet operator Iliad, revealed he has spent €1.1bn on options that could make him Telecom Italia’s second-largest shareholder with more than 15 per cent.
The Italian market regulator Consob on Tuesday met with Mr Niel at its headquarters in Rome to understand his intentions, which have been described by company insiders as focused foremost on improving operations at the group.
But analysts wonder whether the two investors have more ambitious targets. They could now act as kingmakers on any outside bid and are in a position to influence the Italian group as it prepares to talk about merging its Brazilian business with rival Oi.
Those familiar with the situation say that Vivendi is not acting in concert with Mr Niel and point to an underlying antipathy between two long-time rivals from very different backgrounds. But the interests of the two tycoons could well be aligned in future amid consolidation in the European telecoms sector.
“They may not formally talk, but they know each other,” said one sector analyst. “They are both thinking about the future of Telecom Italia. There is clear value in the company: sell or merge in Brazil, cut costs and then flip the stakes or the business as a whole at a higher price.”
Telecom Italia executives had hoped for a period of stability after the dissolution last year of a formal pact between Telefónica and the Italian banks that owned a fifth of the group.
But the Telefónica stake was effectively transferred to Vivendi — in part-exchange for the latter’s Brazilian business GVT. So the Italian group has essentially traded the problem of having a large block of Telecom Italia shares held by a Spanish rival to one held in the hands of a French competitor.
Giuseppe Recchi, chairman of Telecom Italia, has talked with both Mr Niel and Mr Bolloré. Mr Recchi also met this week with Italy’s finance minister Pier Carlo Padoan to update him on what he learnt.
According to one person familiar with the conversations, Mr Niel insisted that he intended to be a “friendly” activist, without any clear opinion so far on dealmaking.
Mr Bolloré, meanwhile, is seeking a partnership with Telecom Italia that would allow it to sell Vivendi’s TV and music to Italian households.
Vivendi has said that it has no interest in acquiring Telecom Italia — and analysts have questioned why it would want to, given the looming costs of planned investments.
Under pressure from Italian prime minister Matteo Renzi to improve Italy’s laggard broadband internet infrastructure, Telecom Italia is planning to spend about €10bn in the next three years alone.
“At this stage we consider a bid for Telecom Italia an unlikely scenario from any of these parties as this would trigger a substantially higher investment than made so far,” said analysts at Haitong Research.
But Vivendi and Mr Niel could play a role if others seek to acquire Telecom Italia. Orange chief executive Stéphane Richard stoked speculation earlier this year by suggesting that he might be interested in doing a deal one day.
Brussels regulators generally look more favourably on cross-border deals rather than those within national markets, even if the synergies are harder to see.
Analysts say Telecom Italia is the obvious takeover target among the larger European telecoms groups. Large blocks of its shares have traded hands over recent years, and its stock price has been hard hit by years of falling revenues. In addition, a buyer could easily sell the group’s Brazil business to raise cash. Telecom Italia currently trades at a discount to the sector. Its enterprise value to earnings multiple is below six times against a sector average of seven times, even though the group offers one of the sector’s higher profit margins.
Italian mobile tariffs have halved in the past few years, but analysts expect prices to stabilise, especially if two of the operator’s rivals merge.
But Telecom Italia has been the subject of takeover speculation before, and it is still lumbered with net debt of €27bn, much of it from two leveraged buyouts close to 15 years ago. Cost-cutting could free up money for investment in infrastructure, but could be difficult to carry out if the government resists job cuts at a former state-controlled group.
The possible merger of the group’s Brazilian business TIM with rival Oi has been talked about for some time but now appears more possible. Oi said last week that it had been approached by Russian billionaire Mikel Fridman with a proposal to invest in a combined Oi and TIM.
Telecom Italia is open to a such tie-up at the right price, according to one person familiar with the situation, given the potential cost savings of a merger, but any deal would depend on who would end up in control, he added.
If either of Telecom Italia’s newest shareholders turned in favour of Mr Fridman then the approach would be difficult to ignore. The value of Telecom Italia’s TIM stake is worth about €3bn.
Not for the first time, Telecom Italia finds itself somewhat in the hands of a shifting shareholder base, but this time with an even greater number of discussions involving the large egos of billionaire businessmen from France and Russia that could prove decisive over its future.