(Updates with CFO comments from conference call)
By Giada Zampano
Of DOW JONES NEWSWIRES
ROME -(Dow Jones)- Telecom Italia SpA (TI) Thursday clinched a deal to sell its German broadband unit HanseNet to Telefonica SA (TEF) for EUR900 million, as part of its efforts to focus on core assets and reduce its heavy debt burden.
Italy's largest telecommunication operator said the HanseNet sale will accelerate the reduction of its closely watched net debt, which stood at EUR35.5 billion at the end of September.
It now forecasts its net debt to fall to EUR34 billion at year-end, not taking into account the HanseNet sale, which is expected to be completed in the first quarter of 2010. The Italian operator also confirmed its targets for 2009, as margins rose in the third quarter on improved profitability in its Italian core market thanks to cost-cutting.
Chief Financial Officer Marco Patuano said in a conference call with analysts that Telecom Italia would be back to core earnings' growth in 2011, after a stable 2010.
Telecom Italia's shares spiked after the announcement of the HanseNet sale as investors cheered its confirmed guidance and the long-awaited disposal of the unit. The shares closed up 2.1% at EUR1.14, outperforming an overall positive Italian market.
Analysts had valued HanseNet at around EUR980 million.
"The sale price is not high, but it's good news for Telecom Italia's debt. Third-quarter results also highlighted an improving trend in margins," said GestiRE asset manager Gianpaolo Rivano.
The purchase of HanseNet will give Spain's Telefonica, a key Telecom Italia shareholder, an influx of 2.3 million broadband customers, bulking up its high-speed Internet business in the highly competitive German telecom market.
Telecom Italia said its reported third-quarter net profit, including HanseNet, grew to EUR741 million in the third quarter from EUR626 million a year earlier. Profit increased despite a 5.6% fall in revenue to EUR6.76 billion, as margins improved on cost-cutting and as a recent price war in Italy abated.
Excluding HanseNet, third-quarter net profit dropped to EUR201 million, due to a EUR540 million write-down of HanseNet's goodwill.
The company's organic earnings before interest, taxes, depreciation and amortization margin, which strips out currency effects and special items, were 44.2% in the third quarter compared with 41.8% the year before. Margins in its Brazilian operations were stable.
The sale of HanseNet is part of Telecom Italia's plan to shed noncore assets for up to EUR3 billion. The assets earmarked for sale last year also included international cable unit Sparkle and Cuban unit Etecsa.
Company Web site: www.telecomitalia.com
-By Giada Zampano, Dow Jones Newswires; +39-06-6976-6925; giada.zampano@dowjones.com