Analysis: Time Running out for a Decision on TIM

Telecom Italia has undergone an agonizing withdrawal from Latin America, holding out to get the best deal for each asset. Many assumed the group would merely offload its less desirable assets and focus on its Brazilian mobile operation TIM Brasil. This unit is now also up for grabs. But is time running out for TIM to make a decision?

TIM Brasil has been rumored to be up for sale for quite some time and Telecom Italia's CEO Riccardo Ruggiero was reported as saying in November that the company was evaluating two unsolicited bids.

The favorite for acquiring TIM is Mexico's América Móvil, but on November 27 Telecom Italia rejected rumors that it had agreed to sell the unit to América Móvil for 8bn euros (US$10.6bn).

The other prime suspect, Spain's Telefónica, ended speculation saying it would not bid for TIM Brasil. Telefónica's CFO Santiago Fernández said the purchase would exceed the group's self-imposed mergers and acquisitions cap of 1.5bn euros until the end of 2007. The Spanish group also wants to focus on acquiring the outstanding 50% stake that it does not own in its Brazilian mobile unit Vivo.

Newspaper reports have also suggested that Brazilian fixed line companies Telemar and Brasil Telecom might be studying an option to carve up TIM Brasil's regional units, while international players such as Germany's Deutsche Telekom were also said to be studying the cost of using TIM as a vehicle for entering Brazil.

The problem for América Móvil, which operates in Brazil through its Claro unit, is that the acquisition of TIM would make it too big to conform to local antimonopoly rules. The telecoms regulator Anatel has not yet made an official announcement about its view of a possible merger between TIM and Claro, but Anatel official José Leite Pereira Filho has gone on record as saying that such a merger would be "very bad" for competition, especially in São Paulo where it would leave only two operators rather than the current three.

There has been at least one press report citing a TIM Brasil source as saying that the Italians are now rethinking the TIM sale.

TIME PRESSURE

However, the same source said that if there really is any chance of a sale, Telecom Italia would like it to happen quickly.

This makes perfect sense for Pyramid Research analyst Thomas Abreu who thinks Telecom Italia can no longer afford to dally.

Now that rumors about the M&A process have started, it could have a negative impact on TIM's employees, while contracts could be lost due to the uncertainty about the sale, Abreu said. "This should make TIM more likely to hurry, [although] initially I don't think TIM was in such a hurry to sell," Abreu added.

"Traditionally in M&A deals, América Móvil makes an aggressive bid and puts a time limit on it... This forces the hand of the seller," he said.

"The Italians will be holding out to get the best price, while the Mexicans are notoriously tough negotiators," Abreu said.

BNAmericas.com"

Posted to the site on 13th December 2006