Telecom Italia Mulls Vivendi Accord to Rival Telefonica Proposal

Aug 14, 2014 6:36 pm ET

Aug. 15 (Bloomberg) -- Telecom Italia SpA is considering proposing an alliance to Vivendi SA that would involve merging the companies’ Brazilian units, an offer that would compete with Telefonica SA’s bid for Vivendi’s GVT business.

The Italian phone carrier said yesterday it is studying whether to suggest an “industrial combination” to the French company, including joining Tim Participacoes SA and GVT. It said no offer has been finalized or made. Bloomberg News reported last week that Milan-based Telecom Italia had approached Vivendi.

Talks have taken place between Telecom Italia Chief Executive Officer Marco Patuano and Vivendi Chairman Vincent Bollore, two people with knowledge of the matter have said. The talks were already under way before Spain’s Telefonica -- which competes with Telecom Italia in Brazil’s phone market -- offered to buy GVT for 6.7 billion euros ($8.96 billion) this month.

“Until we see what terms Patuano is willing to offer it’s hard to really know if they’ve got a shot of competing with Telefonica,” Walt Piecyk, an analyst at BTIG LLC, said in a phone interview from New York. “Just because Telecom Italia issues a release and Patuano meets with Vivendi, it doesn’t necessarily mean that that’s going to result in a price that’s higher than what Telefonica has already offered.”

Telecom Italia dropped 1.6 percent to 81 euro cents yesterday in Milan. Vivendi rose 0.7 percent in Paris, and Telefonica was little changed in Madrid. Tim fell 0.8 percent to 10.90 reais in Sao Paulo.

Brazil Growth

GVT, a broadband-access provider, would be a source of growth for Telecom Italia and Telefonica as phone-service revenue drops in Spain and Italy amid intense competition. Telefonica’s offer for GVT came months after Telecom Italia’s Patuano had expressed interest in the unit. Telefonica put forward the bid after people at the company found out about the talks between Telecom Italia and Vivendi, people have said.

A representative for Vivendi declined to comment.

Responding to Telefonica’s bid last week, Vivendi said that none of its units are for sale, though its board will consider the offer at its next meeting. Vivendi’s board is scheduled to meet at the end of this month, in conjunction with the company’s Aug. 28 earnings release.

‘Strong Shareholder’

While Telefonica’s bid is centered on GVT, a broader alliance with Telecom Italia could include the Italian company distributing content from Paris-based Vivendi’s media assets, which include pay-TV provider Canal Plus. Telecom Italia has sought closer ties with broadcasters to expand in content distribution as call prices slump.

“Telecom Italia is not only seeking to combine its Brazilian unit with Vivendi’s but also aims to involve the French company in its Italian business as a strong shareholder,” said Massimiliano Trovato, a media and telecommunications analyst at Bruno Leoni Institute in Milan. That may make Telecom Italia a stronger bidder, he said.

Telefonica’s bid, meanwhile, may help it comply with regulatory rulings last year that called into question its role as a shareholder of Telecom Italia. In its proposal to Vivendi, Telefonica would give the French company the right to buy almost all of its stake in Telecom Italia.

Brazilian telecommunications regulator Anatel would have to analyze any merger or change in company structure before a deal can go through, said a press official for the agency who asked not to be named. Brazil’s antitrust regulator, known as Cade, said in an e-mail that it will analyze the case upon receiving notice of a deal.

Brazil has been wary of telecommunications mergers. Earlier this month, Communications Minister Paulo Bernardo reiterated while speaking to reporters in Sao Paulo that the government’s preference is for more companies in the market.

Telecom Italia had its debt rating cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to reverse falling sales. Its net debt amounted to about 27.4 billion euros at the end of June, about twice the company’s market value.