Tim Breakup Report Sparks Rally in Brazilian Telecom Shares

Jan 03, 2014 3:15 pm ET

(Updates share prices in second paragraph.)

Jan. 3 (Bloomberg) -- Tim Participacoes SA, the Brazilian unit of Telecom Italia SpA, jumped to a record as speculation its largest shareholder is closer to selling its stake to competitors sparked a rally in telecommunication companies.

The MSCI Brazil/Telecommunication Services Index gained 8.1 percent at the close of trading in Sao Paulo, the best performance among 10 industry groups. Tim, the second-biggest Brazilian wireless carrier by market share, climbed 11 percent to 13.42 reais. Oi SA, the fourth-biggest, surged 17 percent to 4.11 reais, rising the most since October 2008.

Telecom Italia investor Telefonica SA is close to setting up a financial vehicle to split Tim and sell it to rivals Oi, Vivo Participacoes SA and Carlos Slim’s Claro, Il Sole 24 Ore reported today, without saying where it got the information. Madrid-based Telefonica controls Vivo, and a sale of Tim would help address regulatory concern that the Spanish company has too much influence over the Brazilian market.

“A possible offer for Tim at a high price could show that other companies in the sector also have a higher value,” said Alex Pardellas, an analyst at CGD Securities in Rio de Janeiro. Tim stock “is expensive, and what has supported this high price is the expectation that the company could be sold.”

Telefonica favors a sale or breakup of Tim, people with knowledge of the matter said last year, when the Spanish company agreed to increase its stake in the holding company that owns 22.4 percent of Telecom Italia. Tim, based in Rio de Janeiro, has a market value of about $13 billion, and parent Telecom Italia is struggling to reduce debt and financing costs after its rating was cut to junk last year by Moody’s Investors Service and Standard & Poor’s.

Antitrust Pressure

Telecom Italia’s shares rose 6.9 percent to 76 cents at the close of trading in Milan. Volume was 2.4 times the three-month average.

Last month, Brazil’s antitrust regulator ordered Telefonica to reduce its influence on Brazil’s phone business, either by paring its holdings or by persuading Telecom Italia to sell its local unit.

Telecom Italia said in a statement it isn’t aware of any offers for the Brazilian unit and reiterated that it considers the division “strategic.” A spokesman for Telefonica declined to comment on any breakup plans in Brazil.

Some Telecom Italia directors are attempting to make it harder for Telefonica to sell Tim, according to two people with direct knowledge of the matter. The directors, backed by Chief Executive Officer Marco Patuano, are proposing a motion that would require any potential offer for the Brazil unit to be scrutinized by a special committee, said the people, who asked not to be identified because the plan hasn’t been made public.

Telecom Italia’s board is set to vote on the motion at a Jan. 16 meeting, the people said.

--Editors: Brendan Walsh, Dennis Fitzgerald