Telefónica to inject €1.5-2Bn Cash in Telecom Italia

Telefónica disinvestments in last year, such as the recent sale of its stake in Cesky  Telecom, are intended to reduce its financial debt, although the Spanish company has never denied its willingness to make acquisitions whenever they were suitable for their interests. News and analysis about a possible acquisition of Telecom Italia’s crown jewel, TIM Brazil (it holds a 67% participation), for a further segregation, have been coming and going during the last weeks but with no conclusion at all.

Telecom Italia’s board meets on Thursday in order to review its company strategy with the aim of reducing costs and debt as well as boosting growth. According to Reuters, Telecom Italia could announce a capital increase of €2Bn, the sale of telecom towers in Italy or even a dividend cut, while Telefónica would face its support to the Italian company with the aim of forcing it to sell TIM Brazil. Reuters also said that Telefónica may be planning to inject an amount between €1.5-2Bn in Telecom Italia, by means of a convertible securities issue or a capital increase.

“The final decision will be in hands of Telecom Italia. The best option is to wait and see what happens in the board of administration’s meeting. Reuters is just speculating about the actions that both companies could take in a given moment,” Telefónica sources told The Corner on Thursday.

“Telecom Italia doesn’t want to sell TIM although the goal of Telefonica is to force the sale. That might not come before 2015 as general elections in Brazil in October 2014 may make it politically difficult,” Nomura analysts Frederic Boulan and James Britton have commented.

Questioned about Telefónica’s intention, Antonio Castelo, analyst at Interdin in Madrid, said that “the acquisition of TIM Brazil is the operation that the Spanish company has been searching for. Telefónica will probably force the Italian to sell their Brazilian assets if it finally participates in the capital increase.” “Of course the Italian group will object to the sale the most they can, and probably will remind us that the Spanish energy company Endesa is owned by the Italian Enel,” Castelo added.

The end-game would be to split TIM and sell it in chunks between two or three operators. “Considering Telefónica’s control position in the Brazilian company Vivo, a participation in TIM might involve comments on a Spanish monopoly within the country’s sector,”the expert explains.

On Monday, the Czech investment Group PPF announced that it was set to buy the 66% of Telefónica in Cesky Telecom. The operation’s price would reach to €2.5Bn.