Can the board meeting on 24 February break the impasse of too many parties with incompatible plans?
As reported last week, KKR has made a second non-binding offer for Telecom Italia’s fixed line infrastructure or NetCo.
The NetCo entity was set up by CEO Pietro Labriola, who was brought in to sort out the mess, and includes the national access network and the submarine and other infrastructure of its international carrier, Sparkle. This was part of his grand plan to separate the infrastructure from the services that run over it.
KKR’s first offer was rebuffed last April after about six months’ toing and froing. Now it is reported that KKR’s new offer is more than €20 billion.
Vivendi, the largest shareholder in the former Italian incumbent with 24% and previously said the value should be €31 billion if it were to sell its share to the state-backed bank, Cassa Depositi e Prestiti (CDP), which has been mooted.
CDP is the second largest with a 10% stake and thinks the NetCo is worth about €18 billion.
There is to be a board meeting on 24 February to decide what to do with KKR’s offer. The government can block any takeover because of this golden share it owns through CDP and looks likely to do so.
The right-wing government came to power last autumn and has made it clear it views the NetCo assets as strategic and thinks the government should have control of them, although it is not pushing to consolidate the assets under single ownership.
It’s time for a reality check.
Staggering amount of debt
Telecom Italia is carrying €25.5 billion debt – the equivalent of about four times Telcom Italia group’s expected earnings from 2022 before interest, tax, depreciation and amortisation (EBIDTA).
Whether Telecom Italia, the government or its other stakeholders like it or not, the operator is going to have to sell major assets to make any impression on that debt mountain, just like Telefonica and Vodafone were obliged to.
The debt is mostly from acquisitions and means the operator does not have money to invest. And it needs an estimated €7 billion to convert its mostly copper local loop into fibre, never mind anything else.
Attempts to merge Telecom Italia’s local loop unit, Fibercop, which is something of a misnomer, with rival, Open Fiber as part of Labriola’s grand plan, failed after the new government scuppered the idea.
CDP owns 60% of Open Fiber too and the other 40% is owned by the Australian investment fund Macquarie, which was expected to weigh in with CDP on any bid the latter made.
KKR already spent €2 billion acquiring 37.5% of Fibercop, but can’t get the best return on its investment until TIM moves to upgrade its local loop to fibre.
KKR’s reported bid of more than €20 billion is about ten times the whole fixed infrastructure’s 2021 EBIDTA.
Something or somebody needs to be decided and soon because the longer this stalemate goes on the worse the drag will be on Italy’s economy.