Telecom Italia Board To Approve TIM Buyout Tuesday -Report

MILAN -(Dow Jones)- Italy's incumbent phone operator Telecom Italia SpA (TI) will hold a board meeting Tuesday to approve plans to increase its stake in its mobile phone unit Telecom Italia Mobile SpA (TIM.MI), according to an article to be published in newsweekly Milano Finanza on Saturday.

Telecom Italia and Telecom Italia Mobile shares are likely to be suspended on Monday, the article said, according to a summary of it reported on MF-Dow Jones.

MF-Dow Jones is an Italian-language newswire created from a joint venture between Dow Jones and Class Editori, which publishes Milano Finanza.

Telecom's tender offer for TIM shares will be made partly in cash and partly in Telecom Italia's stock, MF-Dow Jones said, without providing further detail.

Investors and analysts have long expected that debt-laden Telecom Italia would eventually buy the 44% of debt-free and lucrative Telecom Italia Mobile it doesn't own. Telecom's shares have risen sharply in Milan over the past five days on speculation that the offer would be imminent.

The main goal of the offer is to use the mobile operator's strong cash flow to service the former monopoly's debt.

MF-DJ's report of the article said that Olimpia, the unlisted holding company through which Pirelli & C SpA (PC.MI) and other investors control Telecom, will see its stake in Telecom diluted after the buyout, and for that reason will hold a capital increase of EUR2 billion. It will use the cash to increase its stake in the merged Telecom Italia-TIM company, the paper said.

Olimpia currently owns 17% of Telecom Italia and Olimpia investors reap dividends from the phone operator, which in turn receives a payout from TIM.

Since Oct. 1, shares in both Telecom Italia and TIM have risen more than 19%, a sign that traders say shows the market had wagered that the offer was in the cards.

Analysts devising hypothetical models believe Telecom Italia will make a cash-and-shares offer for TIM, with a cash component of up to EUR7 billion - around EUR5.5 a TIM share. The swap ratio would be somewhere between 1.66 Telecom Italia shares for each TIM share, suggested Italian brokerage Euromobiliare.

Many analysts and traders say a deal can come only after a fresh cash injection of up to EUR3 billion at Olimpia, in which the Benetton family, Banca Intesa SpA (BIN.MI), UniCredito Italiano SpA (UC.MI) and financier Emilio Gnutti's unlisted Hopa SpA vehicle are junior investors flanking Pirelli.

That would allow Olimpia to boost its stake in Telecom Italia before or after the merger, thereby preventing any dilution of its prominent role in the company.

MF-DJ said the Benetton family still hasn't decided if it will take up its share of the Olimpia capital increase, but won't oppose it. Banca Intesa and Unicredito Italiano are unlikely to subscribe to the capital increase, MF-DJ said.

-By Jennifer Clark, Dow Jones Newswires; 39 335 833 5761; jennifer.clark@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 3rd December 2004