Report: Telecom Italia seeks to trump Telefónica over GVT

Telecom Italia is reportedly in talks with Vivendi over an alliance that could lead to an acquisition of the French group's Brazilian broadband unit, Global Village Telecom (GVT), and see Vivendi take a stake in the Italian operator.

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Telecom Italia CEO Marco Patuano

The reports come just days after Telefónica launched an offer to buy the Brazil-based unit for a total value of €6.7 billion ($8.99 billion). As part of its offer for GVT, Telefónica also said Vivendi could buy up to 8.3 per cent of Telecom Italia's voting share capital.

Now, Telecom Italia is understood to be in rival talks that could upset its Spanish shareholder's plans, according to Bloomberg, which cited people close to the situation.

Reports say that the Italian company's plan, which could be finalised in three weeks, could involve a counter bid for GVT and also enable Vivendi to buy a stake in Telecom Italia via an equity swap. Bloomberg said talks between Telecom Italia CEO Marco Patuano and Vivendi chairman Vincent Bollore had already taken place when Telefónica made its bid for GVT. The talks are also understood to involve a broader alliance that would include the Italian operator distributing content from Vivendi's media assets.

According to Reuters, Telecom Italia is in discussions with Citigroup, Mediobanca, and Banco Bradesco over the financing of the transaction.

Reuters added that Vivendi's pay-TV unit, Canal Plus, is also in talks on the purchase of a majority stake in Mediaset Premium, a subsidiary of Italian media group Mediaset. Sources told the news agency that the "ultimate game is to enable a merger between Mediaset and Telecom Italia."

Brazil is a key battleground for Telefónica and Telecom Italia, where they operate competing telecoms businesses under Vivo and TIM Brasil, respectively. Telefónica has also been under pressure from Brazilian regulator Cade since it boosted its investment in Telecom Italia shareholder vehicle Telco last year. Cade has ordered Telefónica to either sell its shares in Telecom Italia or dispose of Vivo.

The Spanish company's move to sell the Telecom Italia stake as part of a possible merger with GVT would certainly kill two birds with one stone: allay competition concerns in Brazil; and boost its Latin American operations by merging with a fast-growing player on the local broadband market.

Fitch Ratings noted that a GVT deal would increase Telefónica's regional earnings diversification, "which is already a strength compared to similarly rated peers including Deutsche Telekom and Orange."

Fitch noted that Spain only accounts for 45 per cent of Telefónica's operating cash flow, with Latin America accounting for 43 per cent.

For Telecom Italia, a deal with Vivendi would allow it to sever its ties with Telefónica, boost its Latin American operations and possibly secure Mediaset in order to expand its media activities in Italy.

For more:
- see this Reuters article
- see this Bloomberg article
- see this Fitch Ratings release

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