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Telecom Italia considers sale of Brazilian mobile business: source

By Danilo Masoni, Arno Schuetze and Guillermo Parra-Bernal

MILAN/FRANKFURT (Reuters) - Telecom Italia is considering a sale of its 67 percent stake in Brazilian mobile operator TIM Participacoes in a bid to reduce its debt, said a person familiar with the matter on Wednesday.

The Italian operator, which was downgraded to junk on Tuesday by Moody's credit rating agency, aims to raise at least 9 billion euros ($12 billion) from the sale, the person said.

A sale of the Brazilian business is one option being looked at by Telecom Italia's new chief executive, Marco Patuano, who is expected to present his strategy to the board on November 7.

Analysts say Patuano must find a way to cut its debt of almost 29 billion euros and turn around the faltering domestic mobile business.

No banks have yet been mandated for a Brazilian sale, several sources familiar with the situation said, and any deal would be complex given the market realities in Brazil and regulatory issues.

The company also denied it has started a sale process. "Telecom Italia specifies that there is no formal or informal process ongoing for the disposal of its interest in TIM Participacoes," it said in a statement late on Wednesday.

However, Spain's Telefonica, which is Telecom Italia's biggest shareholder, is expected to back a sale of the Brazilian unit, said the sources.

BREAK-UP SALE ?

It remains to be seen if TIM Participacoes could be sold in its entirety to one buyer or if it would need to be broken up and sold in parts to local rivals Telefonica, Mexico's America Movil and Brazil's Oi.

Regulators in Brazil are not likely to allow one of the three to buy the whole of TIM Participacoes because the resulting operator would be too big in terms of market share but sources familiar with the situation said Telefonica, America Movil and Oi could make a joint bid and carve up the asset by region within Brazil.

However, such a move would be complex and risks taking up to a year to carry out, the sources added. Oi's involvement would be complicated by the fact that it announced last week a merger with Portugal Telecom and needs until mid-2014 to close the deal.

However, a price tag of $12 billion would give a 50 percent premium to the current $8 billion market value of Telecom Italia's stake in TIM Participacoes.

"Telecom Italia would have to launch (the sale) process and one possible buyer group is Telefonica, America Movil and Oi," said one person familiar with the situation.

"Does Telefonica have a preference to split up TIM ? Clearly yes. Will Telecom Italia decide overnight that it wants to sell Brazil ? Clearly no."

A senior telecoms banker said that Telefonica and Carlos Slim, the founder of America Movil, are already "actively working" on splitting TIM Participacoes between them.

"That is the Telefonica end game - to split TIM between them and Slim."

But the uncertainties around the disposal mean that credit rating agencies remain concerned over whether it can solve Telecom Italia's debt problem.

Carlos Winzer, the Moody's analyst who downgraded Telecom Italia on Tuesday, said the sale could take a year to close.

"We are concerned that the options Patuano has to strengthen the balance sheet, which include asset sales, could take a long time to carry out and also face high execution risk," said Winzer in an interview.

Telefonica's Vivo brand is the leading mobile carrier in Brazil with a 28.7 percent market share. Tim Participacoes holds a 27.2 percent share, while America Movil's Claro has 25 percent and Oi 18.6 percent, according to the telecom regulator's data.

Telecom Italia shares closed up 6.2 percent at 0.66 euros on Wednesday while shares in TIM Participacoes were up 6.4 percent at 11.60 Brazilian reals by 17:35 GMT after hitting a record high of 11.99. Oi shares were up 1.3 percent.

Spokesmen for Telefonica and America Movil declined to comment. Telecom Italia could not immediately be reached for comment.

($1=0.7398 euros)

(Additional reporting by Sophie Sassard and Anjuli Davies; Writing by Leila Abboud; Editing by Greg Mahlich)

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