Telecom Italia board approves $20 billion TIM buyout

Telecom Italia's board yesterday approved a a20 billion buyout of its mobile arm TIM that marks Europe's second biggest merger of the year, board members said.

On their way out of a morning meeting, directors said details of the deal would be announced shortly.

One of the board members, Luigi Fausti, said the board had approved the plan unanimously.

Immediately after the Telecom Italia meeting, the board of Telecom Italia Mobile (TIM) gathered to discuss the merger. Boards of other firms in Telecom Italia's long chain of control were also due to consider the plan later yesterday.

Italy's dominant phone group will offer a mix of cash and shares to buy the 44 per cent of TIM it does not already own, sources have said previously.

Dow Jones news agency, quoting its MF-Dow Jones newswire joint venture in Italy, said Telecom Italia would offer a5.6 per TIM share in the cash component of the bid, and 1.73 shares for each TIM share in the stock component of the offer.

Telecom Italia declined to comment on the report. An offer of a5.6 per TIM share would be a premium of about eight per cent to its closing price on Friday, before the stock was suspended along with other shares in the group. The reported share swap ratio was in line with Friday's closing prices.

A merger of Telecom Italia and TIM would come on the heels of this year's a7 billion buyout by France Telecom of minority shareholders in its mobile arm Orange.

A Telecom Italia-TIM deal, like France Telecom-Orange, would harness all the cashflow of the mobile unit to help pay down debt at the parent company and increase shareholder returns.

But full control of a mobile phone operator also allows telecoms operators to offer potentially lucrative "bundled" packages of fixed and mobile services.

Of Europe's top six mobile phone companies, only three will remain separately listed if Telecom Italia buys out TIM - market leader Vodafone Group Plc, Spain's Telefonica Moviles and British-based mmO2 Plc.

The higher dividends expected from a merged Telecom Italia-TIM would bolster its chairman Marco Tronchetti Provera and the partners who backed his 2001 takeover of the Telecom Italia group via debt-heavy holding company Olimipa.

Newspapers yesterday said the cash part of the offer to TIM's minority shareholders could be worth a14 billion.

Spreads on Telecom Italia bonds were stable, having widened slightly on Monday after reports the cash component could be as big as a13 billion, bigger than previously expected.

On Monday, bankers in London said Telecom Italia was discussing a syndicated loan worth up to a12 billion.