By Lisa Jucca and Danilo Masoni
MILAN, April 11 (Reuters) - Telecom Italia has appointed a panel of directors to consider a proposed tie-up with Hutchison Whampoa which would make the Hong Kong group Telecom Italia's top shareholder in return for merging their local mobile businesses.
After a six-hour board meeting Telecom Italia issued a statement on Thursday saying it has asked its chairman Franco Bernabe and four other board members to examine Hutchison's proposal 'in a short period of time' and see whether it is in its interest to pursue negotiations.
According to sources familiar with the situation Hutchison would be willing to take a near 30 percent stake in Italy's biggest telecoms operator by folding its 3 Italia business into Telecom and buying out controlling Telecom shareholders who are sitting on big losses on the value of their holdings.
3 Italia is the smallest of the four operators in the Italian mobile market, vying with Telecom Italia, Vodafone and Wind, but analysts reckon it could still be worth 1.5 to 2 billion euros.
Under the proposals Hutchison would get shares in exchange for selling 3 Italia but Telecom Italia said Hutchison had also set as a condition for the tie-up the purchase of an additional stake in the enlarged group that would make it the leading shareholder.
According to sources close to the situation Hutchison would buy that additional stake from Telco, the consortium of shareholders which owns 22.4 percent of Telecom Italia and comprises Spain's Telefonica and Italy's Generali , Intesa Sanpaolo and Mediobanca.
The sources have said Hutchison is prepared to buy Telecom Italia's shares from Telco for 1.2 euros per share - the valuation which Telco holds in its books after repeated writedowns which is twice the current market value.
However, sources close to Telco told Reuters on Thursday that a majority of the consortium's shareholders were sceptical about the tie-up proposal, with Telefonica taking a particularly critical stance. Telefonica is the largest shareholder in Telco and has a right of first refusal over Telecom Italia's shares owned by Telco.
One of the sources said it was difficult to see the business logic for such a deal and that a tie-up could create antitrust concerns as the combined group would have a 46 percent market share in Italy's mobile market.
However, another senior source said there were divisions among the Telco shareholders.
FIXED LINE NETWORK
Also, it was unclear whether the enlarged group would still include Telecom Italia's politically-sensitive fixed line business, valued at between 12-15 billion euros.
Telecom said in its statement that its management would also consider the feasibility of spinning-off the network, although it made no direct link between this and the Hutchison proposal.
The company has been in talks for months with Italian state-backed fund Cassa Depositi e Prestiti over such a spin-off, which could remove a potential hurdle to any deal with Hutchison.
Any decision on a deal and on the network separation is further complicated by Italy's political stalemate following an inconclusive election in February. The Italian treasury holds a golden share in Telecom Italia that gives it veto powers over new shareholders and other strategic decisions.
But by merging its Italian unit into Telecom Hutchison would ease competition pressure in the Italian market, and the combined group could reap synergies worth 500 million euros, according to analysts.
And Bernabe is under pressure to find a way to improve returns for his debt-laden group, which is now struggling against falling margins in its crisis-hit home market as well as a cooling in its other main market, Brazil, where it competes with Telefonica.
Telecom said Bernabe will be joined on the panel exploring a possible deal with Hutchison by directors Gabriele Galateri di Genola, Elio Catania and Julio Linares - representing Telco - along with independent director Luigi Zingales.
A source close to Telco said the panel was expected to report back in two to three weeks.
Shares in Telecom Italia closed 1.7 percent higher at 0.6125 euros.
(Additional reporting by Stefano Rebaudo and Paola Arosio in Milan and Robert Hetz in Madrid; Editing by Greg Mahlich) Keywords: TELECOMITALIA HUTCHISON/
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