Telecom Italia Chips Away at Debt With Persidera Sale
Cash-strapped Telecom Italia is to flog its Persidera broadcasting unit to Italian private equity group F2i and network infrastructure business El Towers as it doubles down on its core telecom business and prepares to launch 5G services.
The sale to F2i and El Towers values Persidera at 240 million ($271 million) and will reduce Telecom Italia's net debt by around 160 million ($180 million), said the Italian phone incumbent in a statement. Telecom Italia is selling its 70% stake in the broadcasting business, while publishing firm GEDI Gruppo Editoriale is divesting the remainder.
The plan is to hive off Persidera's infrastructure business and merge this with F2i-backed El Towers. F2i will then have full control of a new-look Persidera that holds terrestrial licenses and revenue-earning contracts.
Telecom Italia does not expect this process to happen until the final quarter of 2019 because the whole deal is subject to approval by regulatory authorities.
Why this matters
Telecom Italia has been harping on about asset sales since July last year, when it began to get seriously worried about the potential costs of an upcoming 5G spectrum auction. It hung a big "for sale" sign over Persidera's front door when reporting financial results for the April-to-June quarter. It was reported to be in talks with F2i about a sale valuing Persidera at 240-250 million ($271-282 million) before today's announcement.
The operator was right to be worried about the 5G auction. That ended up raising 6.55 billion ($7.4 billion), about 4 billion ($4.5 billion) more than authorities were expecting, with Telecom Italia splurging 2.4 billion ($2.7 billion) on new licenses. Amid weak prospects for sales growth, the outlay has driven Telecom Italia into a network-sharing partnership with Vodafone and made austerity the company mantra.
But the Persidera sale will barely chip away at Telecom Italia's mountain of debt. At 25.2 billion ($28.4 billion) in March, this was about 3.2 times what the operator realized in earnings last year, ranking Telecom Italia as one of Europe's most leveraged telecom incumbents. That ratio will hardly shift when Telecom Italia adjusts its balance sheet by 160 million ($180 million).
Still, the divestment could remove a distraction that made little difference to headline sales: Consumer revenues in Italy fell 6.2% year-on-year in the first quarter, after Telecom Italia stopped including Persidera, but the operator blamed mobile competition and pricing developments for that drop. And it needs to focus like an exam-taking student on its 5G deployment. Network rollout will be costly, and there are still few compelling use cases for the next-generation technology beyond faster broadband connectivity.
Investors appear to see the move as a step in the right direction but aren't getting overexcited. Telecom Italia's share price was up 1.7% in Milan this morning. It has lost about a third of its value over the last year.
To really turn around its fortunes, Telecom Italia needs deal-making on a much grander scale, and an end to the shareholder battles over its strategic direction. A merger of its fixed-line networks with Open Fiber, a government-backed broadband network, would do the trick, according to investment group Elliott, a shareholder whose interests align with the government's. Vivendi, a French conglomerate with a stake of about 24% in Telecom Italia, is hostile to those plans. Yet full mergers with other mobile operators are not an option: Europe's regulatory authorities remain ideologically opposed to such consolidation.
Sadly, today's sale gets rid of a part of Telecom Italia with a very cool name. Persidera might have been a relative weakling on the revenue front, but it sounds like a Roman god. If only Telecom Italia's performance were so divine.
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Iain Morris, International Editor, Light Reading