Fixed-line telecoms need mobile revenues to boost growth

More than half of the price it would pay for the Telecom Italia Mobile (TIM) stake is expected to be in cash.

Telecom Italia is reportedly going to pay 5.50 euros per share, a 6% premium on Friday's close.

The move comes as fixed-line telecoms companies seek to boost revenue from faster-growing mobile phone traffic.

Cash is king

By paying more cash, Telecom Italia's holding company Olimpia would not dilute its stake as much as if it paid for half the deal with shares.

The shares Telecom Italia is expected to pay cash for include two thirds of TIM's ordinary shares and all of its savings shares.

It is expected to announce the precise cash element of the deal on Tuesday.

Meetings

A merger of the two businesses will enable Telecom Italia to use some of TIM's strong cash flow to pay down debt and thus increase its credit rating.

However, it might also take on more debt to fund the acquisition and it is not clear whether this would impact its rating.

The biggest shareholders in Olimpia, the holding company for Telecom Italia, are holding board meetings to discuss the deal on Tuesday.

Their shares, as well as those of Telecom Italia and TIM, have been suspended in the meantime.

Telecom Italia's largest shareholders are tyre company Pirelli, which owns 50.4% of the holding company, and Edizione Holding, connected to the Benetton family, which owns 16.8%.