DUBAI (Reuters) - Egyptian entrepreneur Naguib Sawiris aims to shake up debt-laden Telecom Italia (TLIT.MI) and steer it towards expansion in Brazil if shareholders warm up to his proposal for a 3 billion euro (2.4 billion pounds) cash infusion.
The billionaire tycoon, who got to know Italy well when he owned the third-biggest mobile operator Wind, has put on the table a capital increase that could make him one of the biggest shareholders in Telecom Italia.
Details on the structure of the proposed transaction are scarce, but Sawiris told Reuters that he proposed that the capital increase be open to all shareholders, not just himself, and that it should be conducted around the current market price of 0.70 euros per share.
That is likely to draw the ire of other Telecom Italia shareholders, including Spain's Telefonica (TEF.MC) and the three Italian financial institutions who together own 22.4 percent via an unlisted holding company called Telco.
They value Telecom Italia at 1.50 euros per share in their accounts, and Marco Fossati, whose family's Findim Group SA owns 5 percent of the Italian operator, on Monday said 1.50 was the "correct price" for any capital increase.
Sawiris, going against a trend of retreating investment in crisis-hit southern Europe, said he might also bring in some of his old Wind associates to put Telecom Italia back on the path to growth.
"This proposal will provide a more stable financial structure for Telecom Italia going forward, more growth in Latin America and Brazil, and improved management through the infusion of people who have an excellent knowledge of the Italian market," Sawiris told Reuters.
Sawiris initially approached Telefonica (TEF.MC) and the other shareholders in Telco about the possibility of carrying out a capital increase at the holding company level. He was rebuffed, so decided to approach the Italian group directly.
"We are willing to participate in the capital increase, but shareholders have the choice not to get diluted and join in putting the money," he said.
"If they do not want to, we will come and replace them. But they will benefit from a higher stock price and a more stable company and a company that will grow."
It remains to be seen whether his vision for the group will be shared by Telecom Italia's management and core shareholders.
Telefonica, insurer Assicurazioni Generali (GASI.MI), and banks Mediobanca (MDBI.MI) and Intesa Sanpaolo (ISP.MI) had the Sawiris' offer dropped onto them as a bombshell two weeks ago, insiders have said.
"Sawiris is not a man to go in without being sure he can drive the strategy," one source familiar with the thinking of the core shareholders said.
Sawiris told Reuters he was also opposed to a current plan to spin off Telecom Italia's fixed-line network, which is backed by some core investors as a way to raise badly needed cash, and by the Italian government as a means to speed up broadband investment.
"I believe this is a catastrophe," Sawiris said. "If Telecom Italia does that, they will lose the only differentiator they have left in the telecom market in Italy."
Telecom Italia is now in talks with an Italian state-backed investment fund over such a spin-off. Under the plan, the fund would take a minority stake in the new company in exchange for Telecom Italia effectively becoming a wholesaler of broadband capacity to other companies.
Proponents of the spin-off argue the move would help Telecom Italia reduce debt while accelerating the modernisation of the woeful Internet infrastructure in Europe's fourth-largest economy.
Telecom Italia's board will meet on December 6 to discuss the network spin-off and whether to bid for Vivendi's GVT, a broadband specialist in Brazil, to complement its TIM Brasil mobile business unit in the fast-growing market.
GVT's owner, Vivendi (VIV.PA), is seeking up to 7 billion euros for GVT, which provides fixed telephone, broadband, and TV services in 120 Brazilian cities. Preliminary bids are due in December, sources have told Reuters.
Sawiris is waiting in the wings, though he says he has not had any direct contact from Telecom Italia since sending a letter of interest two weeks ago.
However, advisers from both sides - Lazard for Sawiris and Rothschild for Telecom Italia - have been communicating, according to people familiar with the matter.
Meanwhile, sources close to the telecom group's shareholders have complained of a lack of detail in the Sawiris proposal.
Nuno Matias, a telecoms analyst at Espirito Santo bank, said while Sawiris's arguments about seeking growth in Brazil via the GVT takeover were persuasive, the tycoon could face an uphill battle getting the board and shareholders onside.
"Sawiris isn't alone; there are controlling shareholders of Telecom Italia, and they have their own interests," he said.
"If Telecom Italia strengthens in Brazil then it sets up a conflict with Telefonica."
Sawiris pointed out that he tried talking to Telefonica.
"I met with them, but my feeling is that they are conflicted. They are happy where they are today holding Telecom Italia as a hostage and preventing it from growing into Latin America."
Telefonica and Telecom Italia are the number one and number two players in Brazilian mobile, respectively, and also compete in Argentina. The conflict means that Telefonica cannot take part in board deliberations at Telecom Italia over the Latin American units.
Telefonica's Chief Financial Officer Angel Vila said last week that the group wanted to remain a long-term shareholder in Telecom Italia, and opposed a capital increase.
Telecom Italia has made debt-cutting a priority since late 2008. Cost cuts and asset sales have trimmed net debt more than 4 billion euros to 29.5 billion at the end of September.
Morgan Stanley predicted its net debt was likely to stand at 27.8 billion euros at year-end, or 2.7 times earnings before interest, tax, depreciation and amortisation (EBITDA), above sector averages and in the warning zone for rating agencies.
Sawiris, who sold Wind to Vimpelcom last year, wants to re-enter Italy by investing in the incumbent operator, betting on low valuations and turnaround potential in old-world telecoms.
"I've worked in Italy for five years and what I've learned that very few investors have the insight on what is the real story in Italy," Sawiris said.
Additional reporting by Leila Abboud in Paris and Lisa Jucca in Milan; Editing by Will Waterman