Telecom Italia is reportedly in discussions about merging its mobile-phone unit with that of local rival 3 Italia in a deal that could boost the fortunes of both flagging businesses.
Talks are reportedly at an early stage, and few details have emerged on the precise nature of any tie-up, but analysts cited in several press reports have estimated that 3 Italia (Rome, Italy) could be worth between €1.5 billion ($1.95 billion) and €2 billion.
One option could be a takeover of the Hutchison Whampoa-owned operator by Telecom Italia (Rome, Italy) in an all-share deal.
Telecom Italia’s board is due to discuss the topic at a meeting scheduled for April 11.
The Italian incumbent remains burdened by debts of around €28 billion and is finding the going tough in its domestic mobile market, where it faces competition from Wind (Rome, Italy) and Vodafone (Newbury, UK) besides 3 Italia.
Last financial year, it reported a 9% fall in service revenues from its domestic mobile operation, to €6.15 billion.
The operator has been forced to cut dividends and assume further debts to fund its rollout of high-speed networks in Italy.
Meanwhile, 3 Italia is also struggling to make a profit in Italy, reporting a loss of €298 million in 2012, on the basis of EBITDA minus capex, despite growing revenues by 10%, to €1.97 billion.
According to a Reuters report, analysts at Bernstein believe that 3 Italia may be keen to acquire Telecom Italia shares because it expects the former state-owned to attract interest from Chinese investors, which would drive up its share price.
China Mobile (Beijing, China) has reportedly expressed interest in making investments in Europe.
In 2012, Telecom Italia courted the interest of Egypt’s Naguib Sawiris, who had proposed investing up to €3 billion in the operator, but Telco, its largest shareholder with about a fifth of the company, was opposed to any deal.
Owned by Telefonica (Madrid, Spain), insurance company Generali (Trieste, Italy) and banks Intesa Sanpaolo (Turin, Italy) and Mediobanca (Milan, Italy), Telco could stand in the way of a deal between Telecom Italia and 3 Italia unless the terms are particularly favorable.