Marco Patuano, Telecom Italia’s CEO, will reportedly propose that the company pursues an acquisition of Brazilian integrated operator Oi, in the latest twist to the ongoing consolidation saga in the South American market.
According to Reuters sources, Patuano will base his case on the potential cost savings of combining TIM, the number two mobile player in Brazil, with Oi, which is the fourth largest mobile operator but the leading fixed operator.
The savings would be in the region of $7.8 billion to $11.7 billion, according to the sources. Due diligence by Telecom Italia (TI) is required to provide a more accurate figure.
It is unclear whether the plan would be backed by TI’s board and it is understood that board chairman Guiseppe Recchi does not want to make hasty decisions around strategic issues.
TI, which owns a 67 per cent stake in Brazilian mobile operator TIM Participacoes, lost out to Telefonica in its attempt to buy Brazilian fixed operator GVT in August.
Since then, there has been considerable speculation about the future of TIM, with reports that Oi, together with America Movil (Claro) and Telefonica (Vivo), is working on a joint $13.1 billion bid for the company, with the intention of dividing up its assets.
However, Oi denied it had signed an accord with America Movil and Telefonica to launch a joint bid at the beginning of November.
Consolidation in the Brazilian market has been on the agenda for some time as growth in mobile has slowed and significant investment is needed to upgrade ageing networks.
It seemed that TIM might be the operator most likely to be acquired, but the latest report suggests that this may not necessarily be the case.
Patuano recently said TI must explore the possibility of buying or merging with Oi in order to strengthen TIM, which is the only national mobile player without a fixed business.
The CEO’s proposed deal would see TIM and Oi merge, with overall control of the business lying with TI. The Italian incumbent could raise as much as $2.5 billion in a share sale to fund the deal.
TI chairman Recchi is believed to prefer for TI to focus on TIM’s performance by investing in the network. Delaying a deal for TIM could attract additional bidders for the operator, with Reuters suggesting that AT&T could be a contender.
Change could be afoot for TIM more immediately, according to another Reuters report suggesting that TI is to sell its Brazilian mobile towers to American Tower for around $1.1 billion. The deal is believed to have been done and could be announced at the TI board meeting.
Separately, the Portuguese government said it will not interfere in the sale of Portugal Telecom by Oi, unless there is a risk of the Portuguese incumbent being broken up.
Oi and PT merged earlier this year but the Brazilian company has since said it may sell its Portuguese assets.
It has received a number of offers, including a €7 billion bid from telecoms group Altice, which recently acquired SFR in France, while several private equity firms have also expressed interest.
In addition, Angolan entrepreneur Isabel dos Santos launched a bid for Portugal Telecom SGPS, a holding company with a 25.6 per cent stake in Oi.
The bid is seen as an attempt to block the sale of Portugal Telecom, with the Brazilian company saying the bid from dos Santos was “untimely”.