Telefónica to invest further €864 million to strength position in Telecom Italia

Spanish firm to pay over half of total outlay in cash to increase its voting stake in holding company Telco

Spanish telecoms giant Telefónica said Tuesday it had reached an agreement with its financial partners to increase its stake in Telco, which owns 22.4 percent of Telecom Italia, for a total investment of 864 million euros.

The multi-phased deal requires Telefónica to continue to abstain from participating in decisions which affect the markets in which both telecom operators have a presence, principally Brazil and Argentina.

The accord calls for Telefónica to fully subscribe to an initial 324-million-euro capital increase by Telecom Italia in which it will receive shares without voting rights. It will also increase its share of bonds issued by Telco to 70 percent from 46 percent for a purchase price of 424 million euros, which will be satisfied by the issue of 39 million shares Telefónica owns in itself.

Telefónica is already Telco’s largest shareholder with a 46-percent stake. Its partners Generali, Intesa Sanpaolo and Mediobanca hold the remaining 54 percent. The latest deal will increase its economic interest in the holding company to 66 percent, while maintaining its voting rights at 46.2 percent.

Telefónica will subsequently invest a further 117 million euros to subscribe to a second capital increase by Telco, also for shares without voting rights, which will raise its economic interest to 70 percent.

From the start of next year Telefónica can convert the new non-voting shares it is acquiring into voting shares, with a cap set on its stake of 64.9 percent. Its partners have also granted Telefónica an option to buy their holdings in Telco, which if exercised would leave Telefónica with a 22.4-percent stake in Telecom Italia.

Telefónica’s new shares will be paid for in cash on the basis of a calculation of Telecom Italia’s worth per share of 1.10 euros.

The current pact between Telefónica and its three financial partners was due to expire at the end of this week. “The capital increase of non-voting shares in Telco […] brings stability to the shareholding structure of Telecom Italia, maintaining the independence of the company,” Telefónica said. “Telefónica renews its commitment to contribute to the development of Telecom Italia in its domestic market,” the Spanish firm added.

Telefónica also said the agreement will not affect its commitment to reduce its net financial debt to below 47 billion euros.

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