Telecom Italia to buy AES Atimus in $1 bn deal

MILAN: Telecom Italia, Italy's biggest telecoms operator, is to buy Brazilian fibre-optic grid company AES Atimus for 700 million euros ($1 billion) to bolster its growth in a key emerging market.

Like European peers including France Telecom and Portugal Telecom , Telecom Italia has pursued growth in emerging markets to offset weaker growth at home.

The Italian company, Europe's No.5 telecoms operator, has relied on its Brazilian unit TIM Participacoes SA to drive growth in recent years and the deal is expected to further shore up its prospects in Latin America.

"Brazil has been our growth engine," Executive Chairman Franco Bernabe told reporters at a press conference.

"This deal aims to strengthen our position in Brazil, which is strategic for us and where we intend to grow."

AES Atimus, a unit of U.S. power company AES Corp , owns a fibre-optic network that covers 5,500 kilometres in the densely populated areas of Rio de Janeiro and Sao Paulo.

The deal values the company at 11 times its expected 2011 earnings before interest, tax, depreciation and amortisation (EBITDA).

It is Telecom Italia's biggest acquisition in about a decade as Bernabe has preferred to diligently cut costs and pare debt to revive its fortunes and provide stability, rather than adopt radical growth boosting measures.

The company is not assuming any debt as part of the deal and will finance it with cash.

Bernabe said it would continue to strive to cut net debt which was 30.6 billion euros at the end of March.

"We believe we can confirm our (debt reduction targets) thanks to small asset sales and through cash generation," the manager said.

The operation was expected to close in the fourth quarter and provide savings of 1 billion Brazilian reais ($643 million) over three years.

By 1418 GMT Telecom Italia shares were down 2.3 percent, outperforming a 3 percent fall in Italy's blue-chip FTSE MIB index triggered by fears of contagion from the euro zone debt crisis