CEO Labriola talks stakeholders around to his infrastructure plan
Telecom Italia’s (TIM’s) share price was 9 per cent up on Monday after Reuters reported that formal talks with KKR have begun as they assess the New York-based private equity group’s €10.8 billion euro offer. After a long board meeting on Sunday, TIM also said it would explore a possible tie-up with state-backed broadband rival Open Fiber as part of an in-house revamp proposed last week by its infrastructure engineer-turned CEO Pietro Labriola.
Analyst Andrea Devita at investment bank Banca Akros described it as a “positive outcome, increasing the odds that the offer would be finalised”.
Dilemma for Merger
Recent uncertainty over the direction of the proposed merger saw confidence in TIM plunge and shares lost 30 per cent of their value, hitting an all-time low, since the money markets saw the KKR’s takeover proposal losing momentum. KKR is aiming to secure control of the debt-laden former phone monopoly and wants to delist TIM and relaunch it by carving out its network infrastructure assets, according to Reuters sources.
Open Fiber
However, in the Sunday meeting Labriola talked with KKR about the idea of an Open Fiber merger. The second biggest investor in TIM is state lender Cassa Depositi e Prestiti (CDP), which owns 60 per cent of Open Fiber, and wants to create a single broadband champion in Italy. TIM had hoped to secure a preliminary agreement with CDP over Open Fiber in time for Sunday’s board meeting but discussions over a tie-up involve regulatory issues that will draw out the proceedings, sources have said. In an attempt to revive the tie-up with Open Fiber, Labriola said TIM is ready to relinquish a majority of its prized fixed landline assets.
Is KKR an asset stripper?
Discussions with KKR to assess “the attractiveness and deliverability” of its proposal would also seek to define the “length and scope” of confirmatory due diligence the private equity firm had requested before formalising its non-binding bid, TIM said. KKR aims to secure control of the debt-laden former monopoly, delist it and attempt to relaunch it by carving out its network infrastructure assets, Reuters’ sources said.
Vivendi investment threatened
Labriola’s appointment was sponsored by TIM’s largest investor Vivendi which protested that KKR’s initial offer was so low that it halve the value of its initial investment in TIM. So Vivendi prefers Labriola’s plan to revive the company which is based on separating network assets from TIM’s services arm. “TIM’s board confirmed the will to execute the business plan and explore the revamp, through a reorganisation of the group’s operations and a possible integration with Open Fiber,” the company said in a statement released after a special board meeting on Sunday. “The board also confirmed the conviction there is hidden value in TIM … which must be taken into due consideration when assessing any alternatives to the business plan.”
Labriola wants to strengthen backbone
TIM said Labriola and Chairman Salvatore Rossi would hold formal talks with KKR, following informal contacts between advisers in recent months, to gather more details on the KKR proposals. Italy’s government, which has special powers to shield companies of strategic relevance for the country such as TIM from unwanted foreign interest, has yet to take a formal stance on KKR’s proposal. KKR has said it wanted the backing of both TIM and the government. It is already involved with TIM, having paid €1.8 billion euros last year for a 37.5 per cent stake in its secondary network. A merger with Open Fiber could provide TIM’s investors with an upside of 1 euro a share versus the current set up, Reuters sources said.