TIM, CDP set to start formal talks for network deal – sources

FILE PHOTO: A Telecom Italia's control unit of fiber optics is seen in Perugia
FILE PHOTO: A Telecom Italia's control unit for fiber optics is seen in Perugia, Italy, June 23, 2017. REUTERS/Alessandro Bianchi/File Photo

March 31, 2022

By Elvira Pollina

MILAN (Reuters) – Telecom Italia (TIM) and state lender CDP are expected to start formal negotiations over a potential merger of TIM’s network assets with those of state backed Open Fiber, two sources familiar with the matter said.

The negotiations would come as TIM boss Pietro Labriola presses ahead with a standalone plan to revamp Italy’s biggest phone company centered around a split of its wholesale network operations from its service business.

The sources said CDP and TIM are expected to ink a confidentiality agreement (NDA) in the early days of April.

While discussions with KKR over the U.S. fund’s 10.8 billion euro ($12 billion) takeover approach for TIM are ongoing, TIM and CDP’s plans to sign off on an NDA would mark a further step in an alternative direction.

TIM and CDP declined to comment. CDP, which owns a 10% holding in TIM, controls a 60% stake in its smaller rival Open Fiber.

A combination of the two networks has long been discussed and is seen by CDP as a way of avoiding costly duplication of investment needed to upgrade the national network for Italian households and businesses but a deal proved elusive so far.

A top government adviser said last week the combination remained a government goal.

PRICE GAP

KKR, which has already invested 1.8 billion euros for a 37.5% stake in TIM’s last-mile fixed-line network last year, submitted an indicative bid to buy the group in November.

While a merger of Open Fiber was not part of KKR’s plans for TIM, the fund wants to discuss with the company the antitrust implications of a such a deal and how it can create value for the FiberCop business in which KKR is already an investor.

TIM’s top shareholder Vivendi has billed KKR’s proposal as too low even though it was pitched at 0.505 euros. TIM shares traded 8% lower at 0.33 euros on Thursday.

TIM left the New York-based fund waiting for nearly four months without an answer before agreeing earlier in March to engage in talks, while pressing ahead with its standalone reorganisation to unlock the group’s “untapped value”.

In a letter this week TIM requested KKR to clarify by next Monday whether the price of 10.8 billion euros for the equity was confirmed, as well as whether its due diligence would only have a confirmatory nature as requested by the phone group, sources said.($1 = 0.9021 euros)

(Reporting by Elvira Pollina; Editing by Keith Weir)