By Elvira Pollina MILAN (Reuters) -The board of Telecom Italia (TIM) will meet on Sunday at 1400 GMT over a takeover proposal by U.S. fund KKR, which is already an investor in the Italian phone group’s fixed network, two sources close to the matter said. TIM’s fixed network is its most prized asset and KKR’s […]
Telecom Italia board to meet Sunday on KKR’s takeover proposal
By Elvira Pollina
MILAN (Reuters) -The board of Telecom Italia (TIM) will meet on Sunday at 1400 GMT over a takeover proposal by U.S. fund KKR, which is already an investor in the Italian phone group’s fixed network, two sources close to the matter said.
TIM’s fixed network is its most prized asset and KKR’s move comes as Italy plans to deploy billions of euros of European Union’s recovery funds to boost digital connectivity in the country and catch up with other member states.
KKR last year paid 1.8 billion euros ($2 billion) for a 37.5% stake in FiberCop, the unit holding TIM’s last-mile, or secondary, network connecting street cabinets to people’s homes.
With debt-laden TIM evaluating options for its fixed-line grid to offset shrinking revenue and profits, KKR has readied a proposal to buy the entire group and carve out the network among other assets, another person with knowledge of the matter said.
KKR would like to see TIM’s network merged with that of rival Open Fiber and run as a government-regulated asset along the model used by energy grid company Terna or gas grid firm Snam, the person said.
The single network plan had been sponsored by the previous government but ran out of steam under the current executive led by former central banker Mario Draghi.
Under fire from TIM’s leading investor Vivendi due to the group’s poor results, CEO Luigi Gubitosi has been looking to revive it – opening up to the possibility of TIM ceding control of the combined entity, something which Vivendi had always been opposed to.
A Vivendi spokesperson on Sunday said the French media group remained ready to work alongside Italy’s authorities and institutions for TIM’s long-term success.
Looking to protect its investment, which would be heavily diluted in a merger between FiberCop and Open Fiber, KKR has been working on a project to buy TIM and then carve out assets, sources had told Reuters.
TIM’s fixed-line assets are deemed strategic by Italy’s government and state investor CDP has taken a 9.8% stake in the former phone monopolist to oversee them.
CDP is present in both Terna and Snam, as well as gas distribution grid Italgas, through its CDP Reti investment vehicle which it set up in 2012 to hold stakes in network assets.
KKR plan can only proceed with the government’s assent because Rome has special anti-takeover powers to shield companies deemed of strategic importance from foreign bids.
Italy has so far used these so-called “golden powers” four times since 2012 to veto foreign interests in the country. Two of these have been under Draghi’s ninth-month old government.
TIM’s fixed network is also a key asset supporting the group’s 29 billion euro gross debt which was cut further below the investment grade level by credit rating agency S&P on Friday.
S&P said the single-network project could weaken TIM’s business profile if it lost control of the combined entity, however it was impossible to evaluate the impact of a potential transaction without knowing the details, because the proceeds could also help TIM cut debt and counter falling revenues.
News of Sunday’s extraordinary board meeting was first reported by Italian daily Corriere della Sera’s website.
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(Additional reporting and writing by Valentina Za; editing by Andrew Heavens and David Evans)