By Agnieszka Flak , Gram Slattery and Tatiana Bautzer
MILAN/RIO DE JANEIRO/SAO PAULO (Reuters) - The board of Telecom Italia (MI:TLIT) has given its Brazil unit approval to make a non-binding offer for NII Holdings' (O:NIHD) Nextel Brazil, three sources familiar with the matter said on Friday, allowing for a potential deal that could boost its market share in Latin America's largest economy.
Any offer would be made through Telecom Italia's Brazilian unit TIM Participacoes SA (SA:TIMP3) and could kick off a long-awaited consolidation in Brazilian telecoms. One of the sources warned that the process was still early and the company was still studying whether to extend any offer.
All sources spoke on condition of anonymity to discuss private deliberations.
NII's U.S.-listed shares have appreciated some 1,670 percent year-to-date on expectations of a possible takeover bid, bringing its market capitalization to some $754 million after Thursday's stock market close. This is despite the firm having fewer than 3 million clients and almost no earnings before interest, taxes, depreciation, and amortization.
Much of Nextel's value comes from its spectrum rights in the wealthier Brazilian states of Sao Paulo and Rio de Janeiro, particularly its 1800 and 2100 MHz frequencies, which are key for Brazil's fast-growing and high-margin data segment.
A representative for TIM Participacoes referred Reuters to public statements by Telecom Italia officials. In a telephone conference on Friday, Telecom Italia Chief Executive Amos Genish said the company was interested in Nextel's Brazil unit, but that the process was in its initial phase.
Telecom Italia would be happy to participate in consolidation in Brazil, he added.
One of the sources said NII was expecting to receive the first non-binding offers within weeks. NII's chief financial officer, Daniel Freiman, did not immediately respond to an e-mail seeking comment.
A decision by Brazilian telecoms regulator Anatel last week to loosen spectrum cap limits in Brazil helped spur the decision to look into a non-binding offer, one source said. Previous Brazilian regulations effectively prohibited a Nextel acquisition by a domestic player, as the country's largest telecoms operators were nearing the limit of how much spectrum they could hold in Sao Paulo and Rio de Janeiro.
Telefonica (MC:TEF) Brasil SA (SA:VIVT4), the country's largest telecom operator, has cooled on a potential Nextel acquisition, as the company focuses on its broadband segment, three sources with knowledge of the matter said in recent weeks. The firm's chief operating officer told Reuters in April the company would likely dedicate some 7.5 billion reais of capital expenditure from 2018 through 2020 to broadband expansion.
A representative for Vivo, as Telefonica Brasil is branded, declined to comment.
Shares of NII Holdings surged some 17 percent in pre-market trading on the possible TIM bid, before paring gains to 4.4 percent at midday. Brazil-listed TIM Participacoes shares edged 0.4 lower, while shares in Telecom Italia fell 4.8 percent after the company took a 2 billion euro ($2.27 billion) writedown on its domestic assets and abandoned its 2018 net debt to core earnings target.
Reuters first reported in June that NII had hired Rothschild & Co (PA:ROTH) to explore a sale of Nextel Brazil.
Nextel Brazil is NII's last operation in Latin America after it exited operations in Peru, Chile and Mexico, where its unit was sold for $1.9 billion to AT&T Inc (N:T) three years ago.