AT&T said the company and American Movil, owned by billionaire Carlos Slim, plan to buy stakes in a holding company that owns around 18 percent of Telecom Italia, Europe's No. 5 telecoms group. The companies hope to buy a third each in the holding company, known as Olimpia, Telecom Italia's top shareholder.
The moves come amid speculation over the future of the former state monopoly, which locked horns with the center-left government of Prime Minister Romano Prodi last year over its restructuring plans.
The offers value Telecom Italia shares held by Olimpia at 2.82 euros each, minus Olimpia's debt, AT&T said in a statement. The companies did not give a total value for their proposed investments. AT&T said Telecom Italia's market capitalization is about euro 40 billion ($53.4 billion).
Olimpia and Italian company Pirelli--which holds 80 percent of Olimpia--said there would be exclusive negotiations until April 30.
Talks between Pirelli and a group of Italian banks for the sale of its Telecom Italia stake have been bogged down over price. Pirelli has booked the holding at 3 euros per share against a market price nearer 2.14 euros.
Italy's communications minister, Paolo Gentiloni, said there was "great concern" about the developments, which he said the government would "follow with keen attention."
Disagreements with the government last year triggered the resignation of its chairman, Marco Tronchetti Provera. Tronchetti is still chairman of Pirelli.
Sunday's announcement also underscores San Antonio, Texas-based AT&T's efforts to expand its global business amid a decline in its traditional phone subscriptions.
AT&T spokesman Michael Coe said the investment would help boost its enterprise segment, or its business of serving corporate customers--many of which are doing business abroad.
"We need strong assets and relationships in key areas, Europe being one," he said. "By establishing a stronger, closer relationship with Telecom Italia we will be able to exchange best practices. We'll be able to do joint product and technology development."
The enterprise segment has been one of the weak points at AT&T, which has relied on growth in wireless and high-speed Internet subscriptions for earnings growth. The company says it expects enterprise revenue, which fell 3.7 percent year-on-year in the fourth quarter, to return to growth in 2008.
To help spur growth in that area, the company recently announced that it will spend more than $750 million in 2007 to expand its global communications network for corporate customers, an 89 percent boost over last year. The planned move for Olimpia would be a separate investment and contingent on America Movil's investment, AT&T said.
Investment bank Mediobanca and insurer Generali, which have joined forces with Olimpia as key investors in Telecom Italia, have first refusal on the Olimpia stake. If they take up those rights, AT&T and America Movil will each get an indemnification equal to 16 million euros.
AT&T and America Movil have also said they would offer a put option to Pirelli and Sintonia on their remaining Olimpia stake and their Telecom Italia holdings for a year after any deal.