Telecom Italia's dream of Hutchison tie-up fading fast

Telecom Italia has not abandoned hopes of a possible merger with 3 Italia, but reports say a tie-up with Hutchison Whampoa looks increasingly unlikely.

Telecom Italia's boar postponed a discussion of the merger to a later date and said it did not discuss the tie-up at its meeting on June 5. The company previously said on May 8 it would take up to 30 days to assess a possible tie-up.

Differences over valuations have proved to be a major point of contention between the Italian and Hong Kong operators. According to the Wall Street Journal, Hutchison has invested more than €10 billion ($13.2 billion) in 3 Italia over the years but the mobile operator is still burning cash. However, a merger could produce cost savings estimated at up to €700 million a year. Analysts at Macquarie estimate 3 Italia is worth €1.5 billion to €2 billion, the Journal added.

Reuters also noted that Hutchison is targeting a majority stake in Telecom Italia following a merger, and this has also been a sticking point with existing shareholders such as Telefónica, the biggest shareholder in Telco SpA, which, in turn, owns 22.4 per cent of Telecom Italia's shares.

A further issue is that Telecom Italia currently has its hands full after its recent decision to spin off its fixed network into a separate company. Although this move could ease political and security concerns over a Hutchison tie-up, unnamed sources close to the matter told Reuters there is "no momentum" for the deal with Hutchison.

To be sure, a merger between Telecom Italia and 3 Italia would relieve some of the competitive pressures on the hard-fought Italian mobile market by reducing the number of players from four to three. As the Journal concluded, however, the deal may just be on hold, but its chances of succeeding look slim.

For more:
- see this Reuters article
- see this WSJ article (sub. req.)

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