Telecom Italia on the ropes: merge with Open Fiber or be bought by KKR? Magnifica?

Telecom Italia (aka TIM) Chief Executive Officer Luigi Gubitosi is preparing to relinquish control of the company’s physical network in a bid to revive an on-again, off-again deal with rival Open Fiber SpA and extract value from the company’s multi-billion euro network, its most valuable asset, Bloomberg reported.

The revised merger plan comes in the wake of pressure from the Italian government, which has warned that previous versions of the deal could return the country’s telecommunications industry to a near-monopoly, the people said, asking not to be named because the new project isn’t public.

TIM CEO Gubitosi now plans for Telecom Italia to hold a minority stake in a merged entity that will pool the company’s FiberCop landline unit with that of Open Fiber, a smaller, state-backed rival, the people said.  Gubitosi last month discussed the revised deal with top government officials in Rome, laying out his vision for a single network that would avoid duplications of investments and help accelerate a national fiber roll-out, the people said.

Italy’s state-backed lender Cassa Depositi e Prestiti SpA, known as CDP, owns about 10% of Telecom Italia and controls Open Fiber.  More on their importance for any deal is detailed below.

The change in plan could also help Telecom Italia placate its biggest investor, France’s Vivendi SE which is reportedly disappointed with the company’s performance.

Vivendi has stepped up pressure on the Italian executive after an October profit warning, and a group of directors led by CEO Arnaud de Puyfontaine asked Telecom Italia Chairman Salvatore Rossi to convene a meeting to discuss the company’s plans on Nov. 11, people familiar with the matter said last week.

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Bloomberg reports that U.S. private equity firm KKR & Co. is considering a takeover of Telecom Italia SpA’s network unit as one of its strategic options for the former Italian telecoms monopoly, according to people familiar with the matter.

KKR’s future plans for Telecom Italia would be an alternative to the long-discussed merger of FiberCop with its smaller, state-backed rival, Open Fiber SpA. The private equity firm may be concerned it would be diluted in a possible deal involving Open Fiber, especially after Telecom Italia Chief Executive Officer Luigi Gubitosi revised his project to combine with the company following strong pushback from the Italian government over antitrust concerns.

KKR is looking at alternatives ranging from raising its stake in Telecom Italia’s grid operations — although the carrier says it has no plan to reduce its holding — to pursuing a full takeover of the unit, said the people, who asked not to be named because the discussions aren’t public.

The deliberations by KKR, which owns more than 37% of Telecom Italia’s FiberCop grid company, are preliminary and it hasn’t yet decided what course to take, the people said.  Telecom Italia isn’t presently contemplating a reduction of its stake in FiberCop, according to a spokesman.

KKR Infrastructure last year agreed to pay about 1.8 billion euros ($2.1 billion) for a 37.5% stake in FiberCop, which operates the portion of the Telecom Italia grid that includes cables running from street cabinets to end-user premises — the so-called secondary network.

Getting the Italian government onboard will also be essential to the success of any plans for the company. State-backed lender Cassa Depositi e Prestiti SpA owns about 10% of Telecom Italia, and Rome could invoke a so-called Golden Power ruling on a proposed deal if it’s concerned about a strategic asset potentially falling into foreign hands.

Telecom Italia’s response via a press release was as follows:

With reference to today’s press rumors about possible corporate structures relating to the network, TIM specifies that the subject has not been discussed in the Board of Directors nor have any decisions been made in this regard.

All these rumors come less than one week after Telecom Italia announced Magnifica, which offers FTTH “ultrabroadband” connections on the company’s XGS-PON network.  The new network offering was said to achieve ten times the speed achievable by TIM’s current GPON (Gigabit Passive Optical Networks).  Magnifica provides a connection with speeds of up to 10 Gbps in download and 2 Gbps in upload.

References:

https://www.bloomberg.com/news/articles/2021-11-04/telecom-italia-open-to-ceding-control-of-grid-in-open-fiber-deal

https://www.bloomberg.com/news/articles/2021-11-05/kkr-is-said-to-weigh-takeover-of-telecom-italia-network-unit

https://www.gruppotim.it/en/press-archive/corporate/2021/CS-TIM-Precisazione-en.html

https://www.gruppotim.it/en.html

https://www.reuters.com/article/us-telecomitalia-network/telecom-italia-and-open-fiber-crank-up-war-of-words-over-single-network-idUSKCN2232EZ

One thought on “Telecom Italia on the ropes: merge with Open Fiber or be bought by KKR? Magnifica?

  1. 20 Nov 2021: Telecom Italia to hold new extraordinary board meeting as pressure on CEO mounts

    Telecom Italia (TIM) (TLIT.MI) will hold a second extraordinary board meeting in two weeks on Nov. 26, two sources familiar with the matter said on Saturday, as an internal war over the role of Chief Executive Luigi Gubitosi escalates.

    Gubitosi survived a boardroom showdown on Nov. 11 but after two profit warnings this year at Italy’s former phone monopoly he remains under fire, having failed to convince top investor Vivendi (VIV.PA) that he could tackle the company’s problems.

    The French media giant, which holds a 23.8% stake in TIM, has called into question the role of Gubitosi, pushing to replace him with TIM Brasil head Pietro Labriola, sources have previously said.

    https://www.reuters.com/markets/europe/telecom-italia-hold-extraordinary-board-meeting-nov-26-sources-2021-11-20/

    https://www.reuters.com/business/media-telecom/vivendi-demands-clear-vision-how-address-tims-woes-sources-say-2021-11-12/

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