In response to recent press reports of a possible deal to break up Telecom Italia's Brazilian unit TIM Brasil, the Italian company's association of small shareholders, Asati, has released a statement concluding that the Brazilian mobile unit should be valued at EUR 15 billion rather than the current market value of EUR 9 billion.
According to Asati, the market value fails to take into account TIM Brasil's potential for growth in the booming local market, which currently boasts over 263 million mobile lines. In addition, the association says that the country's current ARPU is below average in relation to GDP and that its mobile data and added value market remains almost entirely underdeveloped. Finally, the market value fails to take into consideration the huge benefits to the remaining three operators of removing a strategic rival.
As a result, Asati's assessment of the potential damage to Telecom Italia of a sale of TIM Brasil estimates that once the taxes on such a sale are taken into account, the Italian company's debt to EBITDA ratio would rise above 10 percent by 2018, significantly higher than the company's own estimate of 2.1 percent by the end of 2016. The consequence would be to convert Telecom Italia into a local operator without any appeal to new investors.
Furthermore, a sale would not bring any benefit to shareholders beyond initial speculative effects, eventually returning the company’s share price to the average of the previous three months, if not lower, according to Asati.
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