Billionaire Martinez to Acquire Telecom Italia's Argentine Stake

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

Mexican billionaire David Martinez agreed to acquire a stake in Telecom Argentina in a $960 million deal, pitting him against the mobile-phone business of Carlos Slim in South America's second-biggest economy.

Fintech Group, Martinez's investment firm, will pay $860 million for Telecom Italia SpA's 68 percent holding in the company that controls Telecom Argentina, as well as a direct minority stake, plus $100 million for agreements including some technical services for the Argentine carrier, Telecom Italia said Thursday. Fintech confirmed the deal in a separate release.

The takeover expands Martinez's bets beyond holdings such as cable assets and Argentina's sovereign debt as he seeks to benefit from increasing Web and video use on mobile devices. Telecom Argentina and the local unit of fellow Mexican billionaire Slim's America Movil SAB each have about a third of the nation's wireless market, according to data earlier this year from Signals Telecom Consulting.

Shares of Buenos Aires-based Telecom Argentina have more than doubled this year as increasing demand for data services boosted sales. The stock fell 1.8 percent to 34.70 pesos Wednesday in the company's home town.

The transaction price values Telecom Argentina at 3.3 times earnings before interest, taxes, depreciation and amortization, compared with a median of 3.5 times for its peers, according to data compiled by Bloomberg.

Telecom Italia, led by new Chief Executive Officer Marco Patuano, is slimming down as part of a turnaround bid. The shares fell 0.5 percent to 67 cents at 1:57 p.m. in Milan, giving the stock a market value of 12.2 billion euros ($16.4 billion). They had lost 1.5 percent this year through Wednesday and after eight straight annual declines.

Telecom Argentina reported a 22 percent gain in first-half sales as more of the country's about 42 million people used mobile devices to access the Internet and send e-mail.

Argentina's economy will expand 2.8 percent next year, trailing the Latin America average of 3.1 percent, the International Monetary Fund said in last month's Regional Economic Update. Brazil, South America's largest economy, will expand about 2.5 percent this year and next, IMF has projected.

Fintech has investments in Argentina's sovereign debt as well as in many restructured companies including a stake in the country's largest cable company, Cablevision SA. Founder Martinez, a former priest, lives half of the year in London and the other half in Manhattan.

He built his fortune by buying and helping to restructure the debt of troubled countries and companies, including Telecom Argentina, according to public filings.

Martinez has also invested beyond Argentina and Latin America. In September, Fintech bought almost 5 percent of Spanish lender Banco de Sabadell SA during a share sale.

"We see tremendous opportunities for growth in the Argentine market and are committed to an important investment program to take advantage of those opportunities," Martinez said in a statement.

Patuano, taking over from Franco Bernabe, who resigned last month after clashing with top shareholder Telefonica SA, is selling assets to revive Telecom Italia as sales shrink. This month, the carrier sold 1.3 billion euros of mandatory convertible bonds as part of a plan to raise about 4 billion euros to pare debt. Its rating was cut to junk last month by Moody's Investors Service.

The company said the disposal's effect on its net debt won't be material. Telecom Italia's adjusted net debt was 28.2 billion euros at the end of September, and the company plans to trim it to less than 27 billion euros by the end of 2013.

Argentina has been one of Telecom Italia's three core markets, along with Italy and Brazil, and accounted for about 13 percent of 2012 revenue.

Telefonica, which in September increased its indirect holding in Telecom Italia, favors selling the Italian company's Brazilian unit, Tim Participacoes SA, people familiar with the matter have said.

In an interview with Il Sole 24 Ore published Thursday, Telefonica CEO Cesar Alierta said there is no plan for a full merger with Telecom Italia, or between the two companies' Brazilian divisions.

Among other assets on sale, Telecom Italia has said it expects to reap more than 2 billion euros for its mobile-phone towers and the TI Media Broadcasting unit.

Patuano said last week that the company had received a $1 billion offer for the Argentine unit, without naming the bidder.

Wednesday, Telecom Italia said its offices were inspected by stock market regulator Consob and Italian financial police seeking information about the convertible-bond sale and the Argentina disposal.

Asati, a group of Telecom Italia small investors, said Nov. 11 that minority shareholders were discriminated against in the sale of the convertible bonds. Asati also asked Consob for clarification of the Argentina sale, saying the phone company hadn't provided enough details about the deal.