2010 02 08

Telecom Italia-Telefonica Deal 'Inevitable' for Italy

The Italian government is in talks with Telecom Italia Spa about the phone company's strategic options, including a possible takeover by Spain's Telefonica SA, said a person familiar with the situation. The discussions, involving the Italian treasury, are at an early stage, said the person, who declined to be identified because the talks are private. The future ownership of Telecom Italia's fixed-line network, which the government wants to keep in local hands for national security reasons, is among the issues under discussion, the person said. Telecom Italia surged the most in almost a year in Milan yesterday after la Repubblica reported that the Italian government supports an "inevitable" merger. A combination would let Telecom Italia cut debt of about 35 billion euros [$49 billion] and give Telefonica, which already owns a stake in the Italian company, a larger presence in Europe and Latin America. "Sooner or later there is going to be a deal," said Carlo Luoni, a fund manager at 8A+ Sgr SpA in Varese, Italy. "With Telefonica, there would be the opportunity to make investments that Telecom Italia can't afford now because of its debt burden." Other bidders for Telecom Italia could also emerge, said the person. Telefonica joined a group of Italian investors in 2007 to acquire a controlling stake in Telecom Italia for 4.1 billion euros, beating Mexican billionaire Carlos Slim. Telefonica is the largest shareholder of Telco SpA, an entity controlling Telecom Italia with a 22.4 percent stake. Minister Meeting Spokesmen for the Italian treasury and Telefonica declined to comment, as did a spokeswoman for Telecom Italia. "This story has legs and there is some industrial logic in it," said Roger Appleyard, head of global credit research at Royal Bank of Canada in London. "By merging with Telecom Italia, Telefonica would create a lot of synergies, albeit execution risk is high. Telefonica...