Hutchison wants control in Telecom Italia merger plan, according to reports

Telecom Italia said it will consider a proposed tie-up with Hutchison Whampoa, and noted that the Hong Kong-based group would want to be the main shareholder in any merger of its Italian mobile operations.

Following a meeting on Thursday, Telecom Italia said it asked its chairman Franco Bernabe to lead a panel of directors to discuss a possible tie-up, Reuters reported.

Currently on the table is a proposal that would see Hutchison take almost 30 per cent of an enlarged Telecom Italia in return for folding its 3 Italy business into the incumbent operator and buying out controlling Telecom Italia shareholders, reported Reuters, citing sources familiar with the situation.

3 Italy is the smallest of the mobile operators in Italy and competes with Telecom Italia as well as Vodafone Italy and Wind. Bloomberg noted that 3 Italy is valued at about €1.5 billion ($2 billion).

Any deal between Telecom Italia and Hutchison faces a number of hurdles before becoming a reality, however. Bloomberg reported that the Hong Kong group is concerned about Telecom Italia's debt, which reached around €28.3 billion in 2012.

In addition Telefónica, which is the majority shareholder in the Telco consortium that owns 22.4 per cent of Telecom Italia, is reported to be critical of the proposed tie-up, Reuters said. Telefónica has a right of first refusal over Telecom Italia's shares owned by Telco.

For Telecom Italia, a deal with Hutchison could provide a way out of its current debt situation and ease the competitive pressure on the Italian market. Like its peers in Europe, the Italian operator is looking at what it can sell and cutting jobs to improve its financial situation. Bloomberg said previous talks with Hutchison in 2010 over a sale of its mobile business to Telecom Italia failed to result in a deal.

Last December, Telecom Italia's board also rejected an offer by Egyptian billionaire Naguib Sawiris to buy new Telecom Italia shares for at least €2 billion.

The Italian incumbent is separately considering the feasibility of spinning off its fixed-line network, which Reuters noted could remove a potential hurdle to any deal with Hutchison. The network has been valued at €13 billion to €15 billion.

For more:
- see this Bloomberg article
- see this Reuters article
- see this other Bloomberg article

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