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Telefonica Consortium Seals EUR4.16 Billion T.Italia Buy

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MILAN (Dow Jones) Spain's Telefonica and a group of heavyweight Italian companies have sealed a deal to buy a controlling stake in Telecom Italia from Pirelli in a transaction valued at EUR4.16 billion, the companies said Thursday.

The deal has been on hold for about six months, awaiting regulatory approval in Brazil, where the operations of the Spanish telecommunications giant and Telecom Italia overlap.

Telefonica teamed up with Italian insurer Generali, Italian banks Intesa Sanpaolo and Mediobanca, and the Benetton family in April to acquire a key indirect stake in Telecom Italia.

According to the terms of the deal, Telefonica pays EUR2.3 billion for a 42.3% stake in a new investment vehicle, named Telco, which will control 23.6% of the share capital with voting rights in Telecom Italia.

Pirelli and the Benetton family announced the deal had been sealed in a statement, in which Pirelli said it would­ get EUR3.33 billion from the long-awaited transaction. Telefonica later confirmed the purchase in a statement to Spain's market regulator.

As part of the deal, Telefonica gains two seats on the Telecom Italia board on condition that its board members abstain from decisions regarding the Latin American markets where the companies' operations overlap.

Brazilian telecommunications regulator Anatel imposed softer-than-expected conditions on the approval of the deal late Tuesday, to ensure that Telefonica and Telecom Italia's Brazilian cellphone operations remain completely separate.

The deal has big implications for Telecom Italia's future, but an agreement within the consortium on the Italian operator's strategy is already proving difficult.

Telefonica is openly against a plan to separate Telecom Italia's fixed-line network, a move Italy's telecoms regulator is pushing for in line with European Union's effort to break former monopolies and ensure broader competition.

Several management reshuffles at Telecom Italia have delayed decisions on the key network issue. Now, new shareholders are set to take control of the company and are expected to again change its senior management.

Traders said the new shareholding structure is seen as good news, with investors looking forward to hearing a clear business strategy from the new Telecom Italia management. Analysts say better governance would also help support Telecom Italia stock, which lags its European peers despite Telefonica's decision to buy into the company.

At 1435 GMT, Telecom Italia shares were up 3.7% at EUR2.17, holding onto earlier gains, against an overall positive market.

--By Giada Zampano, Dow Jones Newswires; +39-02-58219907; giada.zampano@dowjones.com

(Alessandro Mocenni with MF-Dow Jones in Milan and Jason Sinclair in Madrid contributed to this story)

(END) Dow Jones Newswires

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Tags: telecom italia  telefonica  madrid  benetton  anatel  Italy