MADRID â€" The Spanish telecommunications giant Telefónica agreed on Tuesday to raise its stake in the struggling Telecom Italia in an attempt to gain greater control of the Italian operator’s assets in key Latin American markets.
It is the latest in a series of telecom deals in Europe as big players aim to expand their holdings.
Telefónica said it would initially increase its stake in Telco, the holding company of Telecom Italia, to 66 percent through a share issue worth 324 million euros, or $437 million. Telefónica currently has a 46 percent stake in the company.
The deal values Telecom Italia’s shares at around 1.09 euros, or almost double their current value. The Italian company’s stock rose 2.7 percent in afternoon trading in Milan on Tuesday.
The new shares do not carry any voting rights, so that Telefónica will maintain its existing voting rights in Telco at 46 percent. The move is intended to avoid making the deal a full- fledged takeover and thus to steer clear of any antitrust opposition.
From early next year, though, Telefónica said the deal calls for it progressively to buy out its partners in Telco, which include the financial giant Mediobanca and the insurance company Generali, to take full control of the holding company. The timing of when Telefónica would complete the full takeover was not disclosed.
By staggering the deal over stages, analysts said, Telefónica is also giving time for antitrust regulators in Brazil and Argentina, two Latin American markets where Telecom Italia has invested, to review the transaction.
The protracted offer could also allow Telecom Italia to divest some of its assets in Latin America, a region where it already competes with Telefónica and América Móvil.
The agreement marks the end of months of speculation surrounding which has been crippled by a large debt burden that has made it difficult for the company to invest in new infrastructure. A number of potential suitors, including the American company AT&T, had been reported to be interested in acquiring a stake in the Italian company.
The Dutch operator KPN is in discussions with América Móvil, the Latin American telecom company that is owned by the Mexican billionaire Carlos Slim Helú, in a proposed $9.7 billion takeover of the 70 percent of the Dutch company that América Móvil does not already own.
Vodafone, which has sold its stake in Verizon Wireless to its American partner Verizon Communications for $130 billion, is also looking for prospective deals, mainly in Europe.
Telefónica said on Tuesday that the agreement with Telco did not change Telefónica’s commitment to reduce its net financial debt to less than 47 billion euros by the end of the year.
Telefónica’s 50 billion euros of debt is one of the world’s largest corporate debt burdens, amassed mainly through a big investment plan and a spate of acquisitions before the financial crisis began.
The debt burden and a downturn in the company’s main markets have hit Telefónica’s earnings. The company reported a 9 percent fall in its second-quarter operating income, to 4.9 billion euros, while its revenue fell 7 percent, to 14.4 billion euros, over the same period.
Telecom Italia has its own debt â€" 29 billion euros â€" causing investors recently to fret over whether the company might be downgraded to junk status if it did not manage to pare back that burden. The weak economy in Italy, where Telecom Italia generates nearly two-thirds of its revenue, has prompted many Italian consumers to reduce their cellphone spending.
Despite its commitment to lower its debt, Telefónica has continued to pursue growth opportunities outside its domestic market in Spain, where it has been weighed down by the lengthy recession and high unemployment.
In a bid to expand its presence in Germany, Europe’s most robust economy, Telefónica recently agreed to buy the German division of KPN for around $11.5 billion.
While Telefónica has operations spread across Europe and Latin America, the Spanish market still represents a third of its operating profit, although the company lost more than 3 million domestic customers last year.
Raphael Minder reported from Madrid and Mark Scott reported from London.
