Telecom Italia To Buy TIM In Cash, Share Deal - Source"

MILAN -(Dow Jones)- In a deal worth an estimated EUR20 billion, the board of Telecom Italia SpA (TI) Tuesday will call for a cash and share buyout of its mobile unit Telecom Italia Mobile SpA (TIM.MI), or TIM, a person familiar with the situation said.

By acquiring TIM fully, Italy's largest telecommunications company will use the debtless mobile division's annual cash-flow to help reduce the group's debt of more than EUR30 billion. Until now, Telecom Italia has had to rely on TIM's dividend payments. Last year, TIM's cash-flow was EUR3.75 billion.

The transaction will be structured in a way that allows Telecom Italia to maintain its investment grade debt rating, the person said, and could involve a cash payment of over EUR10 billion.

As part of the deal, Camfin SpA (CMF.MI), Pirelli & C SpA (PC.MI) and Olimpia SpA - the companies through which Marco Tronchetti Provera and other investors control the telecoms group - will raise fresh capital, allowing Olimpia to maintain its 17% stake in Telecom Italia.

The boards of these companies will call for capital increases Tuesday, and shares of all the companies will be suspended from trading through Tuesday.

The deal also comes as telecommunication companies, such as France Telecom (FTE) with its unit Orange, are consolidating their mobile units in order to create greater synergies between broadband and wireless technologies.

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.

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.

In addition to Pirelli, Olimpia's investors are the Benetton family of the eponymous clothing company, holding company Hopa SpA, and Italian banks Unicredito Italiano SpA (UC.MI) and Banca Intesa SpA (BIN.MI). The banks are unlikely to subscribe to Olimpia's capital increase, which may amount to EUR3 billion. The Benettons are expected to participate, although they haven't yet committed, and Hopa will subscribe, the person said.

-By Brian Lagrotteria, Dow Jones Newswires; +39-02-58-21-99-06; brian.lagrotteria@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 5th December 2004