Conclusion
TITR IM is currently trading at a 12.7% premium to TIT IM.
As per feedback from various index desks, TITR has been short listed for entry into the MSCI at the next MSCI review (Cut-off date Nov 05th, effective end of Nov) which could be fulling TITR outperformance. The impact should be more than €400m passive inflow.
TITR’s dividend is privileged. However, any TITR’s €2.75c dividend is lost if not paid within 2 years but if TI decides to resume paying TITR’s dividend, TI will always have to make-up for the two previous years. Hence, when and if TI decides to resume paying TITR’s dividend in June 2026, TI will have to pay TITR’s shareholders €8.25c (confirmed by TI’s IR) costing the company €497m.
TI has to resume paying the TITR’s dividend if TI’s Net income is positive but this is not expected anytime soon. TIT’s guidance for Net / EBITDA 25E is <1.9x and approx. 1.7x accounting for the effect of the 98 Concession fee. It could also be added that leverage shoud be close to 1x by YE 27E (see section D for more details). The company seems to be delivering on its deleveraging plan but the potential €497m dividend catch up remains an overhang.
Even if the final decision from the Supreme Court on the ’98 fee should be a positive, the €1.0 bn amount has already been monetized by the company in July 2025. As per the company latest guidance, it is not expected the company to receive any of the NetCo deal earn-outs amounts (see section D for more details).
There was a debate back in 2022 on section 6.5 of the articles and TI’s ability to pay similar dividends to Ordinary and Savings if paid out of reserves. This is not an option anymore as the company does no longer have any reserves available for distribution to shareholders (as of YE 2024) (see section F for more details).
The obvious alternative from resuming payment of TITR’s dividends in the future would be for TI to convert TITR at a premium to TIT.
It is likely that the conversion offer structure to be a simple ratio (as done in most similar conversions in Italy in the past), conditional on TIT’s shareholders approving by a 2/3rd vote as well as TITR’s shareholders approving by a 20% vote.
Assuming the €8.25c accrued Savings dividend is paid in June 2026, the total Present Value of TITR’s divivend differential rigths is worth €0.209 per share (see section B & C for more details).
The key unknown is how much of that value will TI be willing to offer in order to proceed with the conversion.
The possible range would be 50-75% or:
- An implied TITR’s premium vs TIT of 22-33%
- An implied exchange ratio of 1.22-1.33
- Hence a potential upside of 9-20%
If TI decides to opt for the conversion in a 1.22-1.33 range, Poste Italia stake would be diluted from the current 24.81% to 16.3-16.8%.
The risk/reward on such position seems attractive enough to get involved and recomment a Long TITR / Short TIT position. The key unknown has always been when the company will decide to move forward
