Egyptian billionaire Naguib Sawiris's plan to re-enter Italy's telecommunications market risks putting him in conflict with controlling shareholders led by Telefonica SA (TEF) of Spain. Telecom Italia SpA (TIT) said yesterday Sawiris had expressed interest in acquiring new shares in the country's biggest phone company. The 58-year-old, after selling Wind Telecomunicazioni SpA last year, may invest more than 2 billion euros ($2.5 billion) in Milan-based Telecom Italia, said a person familiar with the matter. The shares rose 4.2 percent yesterday, boosting the company's market value to 13.4 billion euros. Telefonica and the group of Italian financial investors that together own 22.4 percent of Telecom Italia through holding company Telco SpA will likely resist a sale of new stock, which would dilute their share of earnings, said Nuno Matias, an analyst at Espirito Santo Research in Lisbon. The shareholders have already written down their stakes by at least 1.9 billion euros. At 1.50 euros a share, the valuation on Telco's balance sheet is still more than double yesterday's closing price. “I don't see why Telefonica would be keen on a transaction like that," said Matias, who recommends buying Telecom Italia shares. “On top of that, given the track record of Telecom Italia, the government's opinion on such a deal can't be ignored." AT&T Bid In 2007, AT&T Inc. (T) and Carlos Slim's America Movil SAB dropped their bid for a stake in Telecom Italia after running into opposition from Italy's government. Assicurazioni Generali SpA (G), Mediobanca SpA (MB) and Intesa Sanpaolo SpA (ISP), together control about half of Telco. Andrea Beltratti, chairman of Intesa Sanpaolo's management board, said yesterday at a conference in Milan that he didn't have any comment on Sawiris's offer. Generali Chairman Gabriele Galateri said at the same event that Telecom Italia's board will evaluate Sawiris's proposal. Representatives at Mediobanca and Telefonica declined to comment. “Each time institutional investors say they're interested in Italy, I'm happy," Industry Minister Corrado Passera told a conference in Milan yesterday. Asked about Sawiris, he said: “it depends on the company and many other things, but evidence is that there is optimism on the future of our country." Telecom Italia fell 1.3 percent to 71 cents at 9:45 a.m. in Milan, bringing its drop this year to 14 percent. The stock is down 57 percent since the talks with AT&T ended in April 2007. Telefonica declined 1.1 percent to 9.86 euros and has lost 25 percent this year. Refinancing Pact Italy's former phone monopoly has been hurt by declining revenue in its home market and is constrained by a debt pile that is more than twice its market value. Telefonica, Assicurazioni Generali, Mediobanca and Intesa Sanpaolo in May agreed on a 3.4 billion-euro financing package to help repay loans obtained in 2007 to buy Telecom Italia shares. “Telco investors would seek a deal for the company to sell new shares at a significant premium to the market price because otherwise they would face further writedowns in their holdings," said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan. Sawiris, nicknamed “Pharaoh," is the eldest son of Onsi, the patriarch of Egypt's richest family. He made his fortune building Orascom Telecom Holding SAE (ORTE) into the Middle East's biggest mobile-phone operator. Biggest LBO Sawiris first ventured into Italy in 2005, when he bought Wind, the country's third-largest mobile-phone provider, in a 12.2 billion-euro deal from utility company Enel SpA. (ENEL) The transaction was Europe's biggest leveraged buyout at the time. Under Sawiris, Wind reached 20 million wireless subscribers in 2010 and became Italy's second-biggest fixed-line company. Last year, Sawiris sold his phone assets including Wind to VimpelCom Ltd. (VIP), creating a wireless company with more than 200 million customers. In January 2011, he sold his 50 percent stake in Tunisiana, the mobile phone operator in Tunisia, for $1.2 billion to Qatar Telecom QSC, closing the deal two days before Tunisian President Zine El Abidine Ben Ali fled the country. Sawiris pocketed about $300 million in cash from those two deals, he told Bloomberg Markets magazine last year. “He has been a good investor in telecoms, and Wind did very well under his ownership," said Robin Bienenstock, an analyst at Sanford C. Bernstein In London. “He, like Slim, does appear to like buying things cheaply, and he seems to have various irons in the fire with his old team from Orascom to get back into telecommunications and Italy." ‘Nice Profit' In June, Sawiris sold his stake in Telekom Austria AG (TKA) to America Movil. He said he and his partner Ronny Pecik made a “nice profit" in the sale. In August, he agreed to buy Matrix SpA, which owns the Virgilio website, from Telecom Italia through his Weather Investment II Sarl holding company. In a phone interview yesterday, Sawiris said he's expecting Telecom Italia to get back to him on his proposal, which is valid until the end of this year. He declined to discuss financial details. The company can sell shares for up to 10 percent of the existing capital without offering stock to existing investors first, provided the price is at market level, according to Telecom Italia's statute on its website. Whether a deal will go through may also hinge on Telecom Italia's plan to spin off its fixed-line network. Chief Executive Officer Franco Bernabe has said there is an “open dialogue" with state lender Cassa Depositi e Prestiti SpA about a possible investment in the network. Alierta's Plan? In a note to investors, Societe Generale analyst Ottavio Adorisio wrote that while Italian policymakers may present hurdles to a transaction with Sawiris, the Telco shareholders “have significantly rethought their priorities." Telefonica CEO Cesar Alierta may not necessarily be adamant about keeping the company's stake in Telecom Italia, said Pedro Oliveira, an analyst at Banco BPI in Porto, Portugal. The executive has been unwinding a decade of acquisitions and this year sold assets from Germany to China to repay debt. “The stake in Telecom Italia through Telco has been a source of uncertainty and a cash drainer and the investment case would be more clean without it," said Oliveira. “It would make perfect sense for Telefonica to sell part or the entire stake in Telecom Italia as the reasons that have tied Telefonica and Telecom Italia seem now more blurry." Bloomberg
