Telecom Italia has presented its strategic plan for 2010-12, alongisde its annual results for 2009. The results were delayed due to the ongoing investigation into alleged fraud at the operator's unit Sparkle. Telecoma Italia forecast revenues in 2010 down 2-3 percent, but the company expects to achieve average growth of 1 percent per year across the period 2010-12. The group targets a reduction in net debt to less than EUR 28 billion, to reach a net debt/EBITDA ratio of 2.5-3.0 times. The operator plans to cut costs by EUR 2.7 billion over the period and reduce its capex budget by around 20 percent. It's also looking at selling assets, including its activities in Argentina, Cuba and the Netherlands.
The Dutch unit BBned has been up for sale since the end of 2008. While no buyer has been found yet, it's a hopeful sign that the Dutch operator's results have now completely disappeared from Telecom Italia's reporting, apart from a goodwill writedown of EUR 6 million (BBned is now part of the 'other' line). The non-disclosure and writedown suggest due diligence on the company may be underway, and Telecom Italia may have lowered its expected proceeds from the sale. Over the four quarters to Q3 2009, BBned had quarterly revenues of EUR 22 million. While the EBITDA result varied more, a simple extrapolation suggests the Dutch company had annual revenues of EUR 88 million and EBITDA of around EUR 17 million in 2009.
What would BBNed be worth based on these estimates? Looking at Telecom Italia's own valuation, we come up with a ratio of enterprise value to reported EBITDA of around 3.8. Giving BBned a small discount, the company would be worth around EUR 50-60 million.
Who would be interested in buying the company? We looked at this issue in a research brief in early 2009. BBned would clearly strengthen Scarlet, the Dutch unit owned by Belgacom. Given its strong position already on the retail and wholesale broadband markets, KPN (and possibly also Tele2 Netherlands) is not a candidate. The only remaining player is Online Breedband. Together with its owner T-Mobile, this could create a full-service provider to challenge Tele2 as the main competition on KPN' s network.
Continuing as a standalone company is also an option not to be ruled out. Telefonica would like to have more influence on Telecom Italia's strategy, and the Spanish operator has a reputation to maintain in terms of geographica expansion. Quite possibly Telefonica is extering pressure to not sell BBned, or to transfer the company to the Spanish operator. The Netherlands is not part of Telefonica's portfolio, and BBned could be its first step onto the market.
