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Telefónica of Spain is discussing with Telecom Italia’s largest shareholders the buying of a stake in Italy’s dominant telecoms operator in a deal which could be valued at €3bn ($3.9bn).

The Spanish group is the latest to express an interest in acquiring part of Telecom Italia from Pirelli, the tyres and real estate company which is seeking to diversify its financial interests.

Pirelli owns 80 per cent of Olimpia, a holding company whose only asset is 18 per cent of Telecom Italia’s shares. People close to the negotiations said Sunday that Telefónica was considering taking up to 30 per cent of Olimpia, which would translate into control of 5.4 per cent of TI.

There are still obstacles to overcome, the people said, and no deal had been agreed. Last month Sistema of Russia and Hinduja of India were revealed to have looked at Pirelli’s holding in TI. Blackstone and other private equity companies have also explored a deal.

One issue that has held back bidders is price. Pirelli’s chairman is Marco Tronchetti Provera who until September was also chairman of TI. He took control of TI in a leveraged deal in 2001 and Pirelli still has its interest in TI valued at 30 per cent more than the market value of the shares.

If Telefónica was to pay €3 a share, which Pirelli is known to be seeking, instead of the €2.30 the shares are worth on the stock market, it would have to justify the hefty premium to its shareholders by explaining that the deal had given it a strategic stake and greater flexibility to expand a partnership with TI.

Telefonica is not for now discussing anything beyond a minority stake in Olimpia in part because there is intense sensitivity in Italy to control of TI moving into foreign hands.

Telefónica on Sunday declined to comment. People close to Pirelli confirmed the talks over a minority stake. They said a wide variety of arrangements were being discussed and that nothing had been concluded.

Executives said Telefónica remains open to taking strategic positions where opportunities arise although it does not want to pursue another large-scale operation such as its €26bn purchase in late-2005 of O2 of the UK.

The most recent example of a smaller initiative was its involvement late last year in a consortium that unsuccessfully tried to buy a controlling 23 per cent stake in PCCW, Hong Kong’s dominant telecommunications company. The Spanish group had hoped to use the deal to raise its holding in China Netcom, the mainland operator in which it has 5 per cent.

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