Telecom Italia this week welcomed a new major shareholder in the form of French businessman Xavier Niel.
The market reacted favourably to the news; the Italian incumbent’s shares were trading 13% higher on Friday morning than they had been 24 hours earlier, before news of Niel’s arrival was confirmed.
But the industry was left wondering at the motivation behind Niel’s desire to build up a position in Telecom Italia. Via call options and other long positions, to use stock market regulator Consob’s words, the Frenchman had built up a potential stake of 11.2% by 21 October, rising to 15.2% by the middle of this week.
Ma, perché? As they say in Milan.
The short answer is, we’re not really sure why.
Analysts at Haitong Research described Niel’s action, which incidentally makes him the second largest shareholder in Telecom Italia, as "a surprising move", in no small part because the telco’s biggest shareholder Vivendi has been building up its stake in the past few months.
As recently as last Friday Vivendi announced that it had increased its holding in Telecom Italia to 20.03%, and reiterated its long-term commitment to the company.
Haitong dismissed the suggestion that Niel has made some sort of agreement with Vivendi, "whose purchases have already led the Italian market regulator to start a review into these developments," pointing out that a mandatory takeover offer would be triggered at above 25%, an outcome that would not be desirable for either side.
Much has been made of the fact that Niel’s presence in Telecom Italia puts him alongside – or even up against – fellow French entrepreneur Vincent Bolloré, chairman of the board at Vivendi and a major shareholder.
But talk of the two businessman going head to head at Telecom Italia seems far-fetched.
"We…do not envisage a power struggle between the two sides at TI; instead we see them driven by the value creation opportunity," the analysts at Haitong said.
The Italian telec oms market has stabilised this year, with aggressive pricing largely coming to an end and a tie-up between third and fourth-placed mobile operators Wind and 3 Italia looming, regulatory approvals permitting.
But perhaps more pertinent is Telecom Italia’s position in Brazil. The telco remains committed to its TIM Brasil business, often describing it as a strategic asset, but has also made it clear that it would be willing to sell for the right price.
As the only major Brazilian operator without a fixed-line business, TIM is frequently named as a likely participant in market consolidation, something that has been on the cards for the past couple of years.
On Monday Brazil’s Oi revealed that it had been contacted by Russian investment group Letter One, which is willing to make a capital contribution of up to $4 billion in Oi, provided it negotiates a business combination with TIM.
Oi said it will evaluate the proposal carefully, while TIM said it is not party to any discussions between Letter One and Oi.
All things considered, it seems Niel’s interest in Telecom Italia stems from the opportunity to make some money.
As Haitong notes, "the fact that TI shares have corrected sharply in recent weeks after recent highs creates a very interesting window of opportunity to acquire a stake in the company."
Niel is sticking his head through that window, rather than his foot in the door.
