Telefónica seeks to assure Telecom Italia over jobs and investment

Telefónica CEO and Chairman Cesar Alierta gave assurances in Italy that he will avoid job cuts and maintain network investments at the struggling Italian operator as the Spanish group gradually increases control over Telecom Italia.

Citing unnamed sources, Bloomberg said Alierta met both Telecom Italia CEO Marco Patuano and Italian Prime Minister Enrico Letta in Rome and confirmed Telefónica's commitment to invest in Telecom Italia's fibre and LTE networks, and maintain employment levels. Telecom Italia employs more than 82,000 workers.

After a meeting with Letta on Tuesday, Alierta told reporters, according to Reuters: "Telecom Italia will remain an Italian company and Telefónica will ensure employment."

The meetings came ahead of a board meeting scheduled to take place on Nov. 7, when the Italian operator is expected to present a new strategy to the board. Bloomberg noted that Telecom Italia is reportedly considering measures including a capital increase of as much as €2 billion ($2.74 billion), a cost-cutting programme, asset sales, as well as the scrapping of its dividends. It has also been previously reported that the operator may drop plans to spin off its fixed-line network, however.

In September, Telefónica finally secured an €860 million ($1.2 billion) cash and shares deal that would see the Spanish operator increase its hold over the Italian incumbent via the Telco holding company, which owns a 22.4 per cent stake in Telecom Italia. Telefónica said it would raise its stake in Telco, the largest shareholder in Telecom Italia, to 70 per cent from 46 per cent over the next few months. Other Telco investors are Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA.

Since then it seems that things have gone from bad to worse for the Italian operator. Italian politicians and trade unions expressed concerns about national security, job losses and the pace of investment in technology, while clashes between Telefónica and former CEO Franco Bernabe over the potential sale of Tim Brazil led to Bernabe's departure; the former CEO favoured raising capital rather than asset sales to reduce debt.

Immediately after Bernabe's departure, Moody's cut Telecom Italia's debt rating to junk status. It has also been reported that Telecom Italia has been sounding out the possibility of a Tim Brazil sale to raise €9 billion, although the Italian operator said at the time it had not started a sales process.

Other investors are still concerned that increasing Telecom Italia's share price is not an objective being pursued by Telefónica.

Marco Fossati, who owns 5 per cent of Telecom Italia and is reportedly seeking to replace the company's current board, told Reuters that the issue is not "whether or not an Italian or a foreign group takes over management of the company but whether control is given to groups that are really concerned with increasing the value of Telecom Italia."

Retail investors association Asati said Telefónica should launch a takeover bid for Telecom Italia or pursue a merger valuing the Italian company at more than €1.1 a share, Reuters added.

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

Related Articles:
Report: Telecom Italia mulls €9B sale of Brazilian unit
Moody's cuts Telecom Italia to 'junk' status
Telecom Italia CEO Bernabe quits amid break over strategy
Reports: Telecom Italia CEO Bernabe ready to quit
Telecom Italia directors and politicians challenge Telefónica's plans

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