Telecom Italia (Rome Italy), the country’s largest telecom operator, is set to buy Brazilian fiber-optic grid company AES Atimus (Rio de Janeiro, Brazil) for $1 billion.
Like European peers including France Telecom and Portugal Telecom, Telecom Italia has pursued growth in emerging markets to offset weaker growth at home.
The Italian company, Europe's No.5 telecoms operator, has relied on its Brazilian unit to drive growth in recent years and this deal is expected to further its prospects in Latin America.
"Brazil has been our growth engine," said Franco Bernabe, executive chairman at Telecom Italia. "This deal aims to strengthen our position in Brazil, which is strategic for us and where we intend to grow."
AES Atimus, a unit of U.S. based-company AES Corp, owns a fiber-optic network that covers 5,500 kilometers in the densely populated areas of Rio de Janeiro and Sao Paulo.
The deal values the company at 11 times its expected 2011 earnings before interest, tax, depreciation and amortization (EBITDA).
This is Telecom Italia's largest acquisition in about a decade as Telecom Italia has preferred to cut costs rather than adopt radical growth boosting measures. The company is not assuming any debt as part of the deal and will finance it with cash.
Bernabe said the company would continue to strive to cut net debt, which was $42.9 billion at the end of March.
"We believe we can confirm our (debt reduction targets) thanks to small asset sales and through cash generation," the manager said.
The operation was expected to close in the fourth quarter and provide savings of $643 million over three years.