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Pirelli was in exclusive talks with AT&T and América Móvil of Mexico on Sunday night to sell two-thirds of its controlling shareholding in Telecom Italia.

A deal would see two industrial partners invest in Italy’s dominant telecommunications company instead of the Italian banks with which Pirelli had been negotiating.

On Monday shares in TI rose 6.9 per cent to €2.28 at the prospect of a bidding war for the group’s parent company Olimpia.

If a deal is concluded, it would mark the end of an era for Marco Tronchetti Provera, the Pirelli chairman who was also TI’s chairman until September. An agreement could represent opportunities for TI to develop strategies in other countries as margins and revenues slow in its home market.

People close to the talks said on Sunday night that no deal had been concluded. They said Pirelli, a tyre and real estate group, and the two interested groups were talking to TI. TI recently turned down a deal with Telefónica of Spain that had been lined up by Mr Tronchetti.

An agreement could value Pirelli’s 18 per cent stake in TI at nearly €7bn (£4.8bn), a premium of almost a third to its market value. The two buyers would have to pay out much less than two-thirds of that valuation because Pirelli controls the shares through Olimpia, which has its own debt.

Pirelli owns 80 per cent of Olimpia with Italy’s Benetton family holding the other 20 per cent. The deal would see those two groups sharing control of the holding company with AT&T, the biggest US telecoms group and América Móvil, which is controlled by billionaire Carlos Slim. Olimpia controls TI by nominating the vast majority of its board.

Mr Tronchetti was forced out of TI in a dispute with the Italian government over possible asset sales. There has been immense frustration at Pirelli over the inability to sell all or part of its TI holding and there will be wariness of government opposition to the latest proposal.

Two groups of Italian banks have been trying to conclude a deal with Pirelli but talks have foundered. One of the biggest problems is price. Mr Tronchetti overpaid for the TI shares in 2001 and they are still on Pirelli’s books at €3 a share compared with Friday night price of €2.14.

Banks would find it hard to justify paying a premium over the market price but industrial bidders could potentially make a case by pointing to the benefits of shared research, logistics and other joint ventures.

AT&T said on Sunay night that it believed “its potential investment in Olimpia would provide Telecom Italia with a strategic partner with whom it can share best practices and pursue joint interests”.

Pirelli said if the deal was not concluded Mediobanca and Generali, two Italian financial groups, had the right of first refusal on the shareholding in Olimpia. A break-up fee of €16m would be payable to both AT&T and América Móvil.

Pirelli said the groups were in exclusive talks and had until the end of the month to conclude the deal. AT&T said the bid was contingent on América Móvil, also bidding for an Olimpia stake. It cautioned that there were numerous hurdles to be overcome such as completion of due diligence and “agreement on other terms of the transaction”.

TI’s entire board is up for re-election in the middle of the month and the deadline for shareholders to nominate board members is the end of the week. The company recently announced a three-year strategy plan which left many analysts unimpressed. A well-explained strategy with two of the largest telecoms companies in the Americas could help win over its critics, However TI has been reluctant to tie its hands by agreeing exclusive joint ventures with only one or two partners.

Copyright The Financial Times Limited 2019. All rights reserved.

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