Stock Spinoffs

Arrivederci Spinoff! Proposed Telecom Italia Spinoff Possibly Shelved

Spin Doctor
The death knell appears to be ringing for Telecom Italia’s (TI) fixed line spinoff. According to this Bloomberg piece, the company plans to ask its board of directors to withdraw its approval for the spin, which would put an end to a process which has been going on for over a year. That is a loooong time and a lot of effort for naught, although not quite as long as securing a conviction against former Prime Minister Berlusconi.

It shouldn’t come as a surprise though as the spinoff was riddled with stumbling blocks, including an order from Italian regulators this summer ordering the company to cut rates. The plan took a huge hit earlier this month when CEO Franco Bernabe, the spinoff’s champion, resigned after ‘clashing’ with the Board over ‘strategic directions’. Hmmm I wonder what that could be referring to? Apparently, Spain’s Telefonica SA (TEF), which recently upped its stake in the company to a controlling position, has other plans for turning around the business.

In addition to securing regulatory relief, the spinoff was expected to raise a significant amount of cash in order to pay down its hulking debt balance so the company will need to develop a new plan to provide capital structure relief. A sale of a small stake or strategic assets could be on the horizon, but in the meantime, Moody’s cut its rating to junk and S&P also stated that a downgrade was ‘the more likely outcome.’

The Board meeting is November 7th so we should have more details then.

Disclosure: Author holds no position in any stock mentioned.

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