Telecom Italia is poised to announce a €20 billion bid to purchase mobile arm TIM that would offer shareholders a small premium.
The boards of Telecom Italia and TIM as well as tyre-maker Pirelli and other companies in the group's long chain of control are set to meet tomorrow on the buyout deal, sources said.
Shares in the companies that make up the chain - from fuel company Camfin, controlled by the family of Telecom Italia chairman Mr Marco Tronchetti Provera, all the way down to TIM itself - were suspended from trade yoday.
Italian media reports said half the offer for the 44 per cent of TIM, which Telecom Italia does not already own would be made in cash, offering TIM shareholders about €5.50 per share, a premium of just over 6 per cent to TIM's closing share price on Friday.
Analysts have said they do not expect a big premium for TIM shares, given Telecom Italia's funding restraints.
They have estimated Telecom Italia would offer 1.7-1.8 of its own shares for each share in TIM in the stock component of the buyout bid, in line with their current market values.
La Repubblicasaid Telecom Italia could pay for 68 per cent of the remaining shares with €14 billion of cash, a move that would require heavy borrowing by Telecom Italia and could threaten the group's credit rating.
With the ratings agencies watching the group's borrowing levels closely, using new Telecom Italia shares to fund the deal would weaken the grip of main shareholder Olimpia, which is owned by Pirelli and partners including the Benetton family.
A source close to the Benettons, the second biggest investors in Olimpia, said the family would pay its share of a capital increase at the holding company after overcoming reservations about pumping in more money. The Benettons' holding company, Edizione Holding, owns 16.8 per cent of Olimpia. Pirelli owns 50.4 per cent .