THE MARKET WAITS WITH CAUTION FOR THE PATUANO BLITZ. BOLLORE' TOWARDS LEADERSHIP WITHOUT CASH OUTPUT
The fever is rising for Telecom Italia's offer to Vivendi. The stock of the former incumbent fell -0,31% in Piazza Affari, despite the fact that most analysts appreciate the strategic value of the adventure in Carioca land. Let's see why, starting from the examination of the dossiers brought to the attention of Vivendi.
1) The offer on Gvt packaged by Telecom Italia's advisors (Mediobanca, Citi and Bradesco) should be delivered between tomorrow and the day after tomorrow to Vivendi, the French multimedia group led by Vincent Bolloré, which could convene an extraordinary board of directors before that of the day 28, dedicated to the accounts and examination of the offer presented by Telefonica.
2) Judging by the forecasts, Gvt would be valued by Telecom at least 7 billion euros, more than the 6,7 billion offered by the Iberian group for control of the fixed telephone company active in 153 Brazilian cities, with a strong broadband network it has 700 subscribers to Canal Plus and Universal content and boasts a state-of-the-art content billing system. The offer values Gvt, which has never closed in profit, more than 10 times the Ebitda against a valuation of Tim Brasil equal to 4,9 times the Ebitda. However, there is no cash payment. The offer, in fact, provides for the establishment of a joint venture between Gvt and Tim Brasil, with equal shares, plus a percentage directly in the hands of Vivendi. To equalize the value of Gvt, therefore, Telecom will have to strengthen the capital of Tim Brasil by at least two billion.
3) The "strong dish" of the Italian offer, however, is the "upstream" payment quota. Indeed, 20% of Telecom Italia will be reserved for Vivendi (market value around 3 billion euros, given the capitalization of the share at around 15 billion, just over half of the debts of the former Italian incumbent) the result of a of free capital which would make the French company the new strong shareholder of the Italian company in full harmony with Mediobanca (of which Bolloré is vice president) and the other Italian former Telco shareholders (Intesa and Generali) who could postpone the exit.
4) Telefonica's offer, for now, seems to have less appeal. The Spaniards offer 6,7 billion, with a cash share but also a 12% stake in Vivo, the Brazilian subsidiary of Telefonica. The operation, unlike the Italian one, would have many difficulties in overcoming the objections of the Brazilian antitrust, a circumstance which in any case would be destined to dilute the deal over time. Furthermore, Telfonica offers a pre-emption right on 8,1% of Telecom Italia, a share which would not guarantee any leadership to Vivendi in the Italian company.
5) From the point of view ofindustrial combination the offer packaged by Alberto Nagel for the benefit of Marco Patuano seems much better. Vivendi acquires the possibility of increasing firepower on the Brazilian market and distributing the contents of their activities (Universal Music and Canal+), the main source of revenue for the transalpine group, in a market such as the Italian one where the possibilities of penetration remain very elevated. For the Italian partner, the main convenience consists in the formation of a new majority with strong common interests: Vivendi, after having ceded control of Sfr (a transaction concluded before Bolloré's arrival at the top) is looking for partnerships with a large telecommunications company ; the Italian company, after years of painful coexistence, could reduce the weight of a shareholder, Telefonica, in clear conflict of interest in Brazil.
Why doesn't the industrial combination meet the favors of Piazza Affari?
1) The Brazilian operation provides for a strong injection of capital into Tim Brasil, at around 2 billion according to analysts' calculations, which can only be partially financed (around 500 million) with the conversion of savings shares. The risk of a capital increase of the Italian company thus remains high.
2) The Mediobanca plan does not envisage large outlays. But, at the same time, it does not contemplate cash injections in Telecom Italia since entry to the top management of Vivendi would take place without capital injections. Furthermore, the arrival of Vincent Bolloré would mark the end of the brief experience as a public company and, consequently, the loss of a prize linked to the contestability of the title.
3) No less important, the speculative appeal of a possible sale of Tim Brasil to some competitor is no longer there, a weak prospect on an industrial level but which would have made possible the reduction of debts and perhaps an extraordinary dividend.
4) Finally, the market prefers to wait in view of the possible (indeed probable) counter-move by Telefonica which could up the ante in Gvt or do battle within the precincts of Telecom Italia.
