Telecom Italia said Sunday that it would begin formal talks with KKR to evaluate the U.S. Fund’s potential 10.8 Billion euro ($11.8 Billion) offer for Italy’s largest phone company, nearly four months after it approached.
Telecom Italia (TIM) said that it will also consider a tie-up with Open Fiber, a state-backed broadband competitor. This is in addition to the company’s ongoing in-house overhaul led by Pietro Labriola, who was presented in March.
Discussions with KKR would be to evaluate “the attractiveness, deliverability” and “the scope and length” of the confirmatory due diligence that the private equity firm requested before formally submitting its non-binding offer.
Sources have stated that KKR aims at acquiring control of the debt-laden ex-monopoly in phone technology, delisting it, and attempting to relaunch it through the creation of its network infrastructure assets.
Labriola was appointed by TIM’s largest investor Vivendi who deems KKR’s initial offer too low. He has now presented his plan to revive the company. Labriola’s plan focuses on separating network assets and TIM’s services arms.
“TIM’s board confirmed that they will execute the business plan, and explored the revamp, through a reorganization and possible integration with Open Fiber,” the company stated in a statement after a Sunday special board meeting.
“The board also confirmed that TIM has hidden value…which must be considered when evaluating any alternative business plans.”
TIM stated that Chairman Salvatore Rossi and Labriola would have formal talks with KKR after informal contacts in recent months to get more information on the KKR proposals.
In recent years, TIM has seen its revenue decline and margins shrink amid fierce competition in its core market. After Labriola announced his revamp plan and the company’s record 2021 loss, TIM shares plunged to an all-time low last week.
KKR’s offer of 0.505 euros per share is 75% higher than Friday’s closing price, compared to a 46% premium at the time it was announced.
The government of Italy, which has the special power to protect companies of strategic importance to the country, such as TIM, from foreign interference, is yet to express a formal opinion on KKR’s proposal.
According to the U.S., the fund wants both the government and TIM’s support. KKR has already been involved in TIM and paid 1.8 billion euros last year for a 37.5% share in its secondary network.
OPEN FIBER TABLES
Rome is now the second-largest investor in TIM. This was achieved through the state lender CDP. Open Fiber has 60% ownership.
TIM stated that it will continue negotiations with CDP as well as discussions with all authorities regarding the Open Fiber merger. This would create a single champion for broadband in Italy.
TIM had hoped for a preliminary agreement over Open Fiber with CDP in time for Sunday’s board meeting, but sources say that discussions about a tie-up that raises regulatory questions will take longer.
Labriola stated that TIM is willing to give up a large portion of its valuable fixed landline assets in an effort to revive the partnership with Open Fiber.
Sources have previously stated that a merger with Open Fiber could give TIM’s shareholders an upside of 1 euro per share compared to the current setup.