The multi-part 860 million euro ($1.2 billion) cash and shares deal will allow Telefonica to raise its stake in debt laden Telco. It will have 22 percent of Telecom Italia, allowing Telco's other investors, Intesa Sanpaolo, Generali and Mediobanca to eventually bow out.
Telefonica has a few debts of its own, it owes $67.5 billion and wants to have influence over what happens to Telecom Italia and its prized Brazilian mobile unit Tim Participacoes. The deal has yet to receive the approval of Brazilian regulators, who could force Telecom Italia to sell TIM Participacoes if Telefonica acquires full ownership of Telco. Telecom Italia itself owes $39.1 billion and is seeing ever shrinking margins. It has attracted interest from Egyptian tycoon Naguib Sawiris and Hong Kong-based Hutchison Whampoa. AT &T was also interested.
Telecom Italia needs capital to cut its debt, but is likely to face scrutiny over a prospective break-up of Italy's biggest telecoms group as well as possible lay-offs. The Italian government is considering a plan to sell the company's fixed-line network, Italy's most sensitive telecoms infrastructure, to a state-backed fund so that the country can get a half-way decent broadband.