Telefonica said the deal, which will involve a transfer of cash and shares to Telecom Italia’s controlling shareholder Telco, would be worth around €860m (£725m) and will eventually give Telefonica a 70 per cent ownership of Telco, and therefore Telecom Italia.
Telecom Italia, Italy’s largest telecoms company, is valued at nearly twice its market value by the deal, which values the company at €1.09 a share.
Despite heavy debts and sinking margins at home, Telecom Italia is viewed as a potential takeover target thanks to its prized Tim Participacoes (TIM) mobile unit in Brazil.
Some analysts believe Telefonica may look to break up and sell TIM, which is estimated to be worth $10bn, to strengthen its own position in Brazil.
“We believe this additional investment made by Telefonica in Telco was the price the company was willing to pay to keep its options open at Telecom Italia and keep at large any other third party that could be interested in Telecom Italia and especially its Brazilian assets,” said an Espirito Santo analyst.
Telecom Italia’s shares rose 2.3 per cent yesterday to close at €0.6 a share.