© Reuters. File photo: Telecom Italia’s TIM brand logo can be seen on a building in Rome, Italy on April 9, 2016. REUTERS/Alessandro Bianchi/File Photo
Authors: Elvira Pollina, Valentina Za and Pamela Barbaglia
Milan (Reuters)-Board of Directors Telecom Italia (MI:) (TIM) held a meeting at 1400 GMT on Sunday to discuss KKR’s acquisition proposal. Two sources said, adding that the U.S. fund plans to develop the fixed network of the Italian telephone group, which is already the Group investors.
TIM’s fixed line is its most valuable asset, regarded by Rome as strategically important, and has the right to prevent any unnecessary actions.
According to sources, the government of Prime Minister Mario Draghi is also aware of the need to prevent TIM’s revenue loss, support the debt-ridden group when it needs to increase investment, and protect its 42,500 domestic workers. .
TIM CEO Luigi Gubitosi reached a 1.8 billion euro ($2 billion) deal with KKR last year, which allowed the New York-based fund to acquire a 37.5% stake in FiberCop, which holds TIM to connect street cabinets. To the last mile network of people’s homes.
Under attack from TIM’s top investor Vivendi (OTC:), Gubitosi has been studying how to extract funds from TIM’s assets, especially re-examining the merger of TIM’s fixed-line power grid with the fiber-optic competitor Open Fiber’s fixed-line power grid. plan.
With the support of the previous government, the project was shelved under Draghi’s leadership.
KKR’s plan envisages a single network as a government-regulated asset to operate according to the model used by energy grid company Terna or natural gas grid company Snam, said one of two sources and a third person familiar with the matter.
Four people familiar with the matter said that rival private equity firm CVC has also studied possible plans for TIM to collaborate with former TIM CEO Marco Patuano, who is now a senior advisor to Nomura Securities in Italy.
In order to overcome the political and regulatory opposition to the single network plan, Gubitosi has opened up the possibility of TIM giving up control of the combined entity, which Vivendi has always opposed.
Two sources said that Vivendi is pushing to replace Gubitosi at the helm and is facing a huge capital loss of 24% of its TIM shares due to its share price weakness near historical lows, but does not object to KKR’s proposal.
One of them stated that Vivendi may also be willing to consider one of CVC if it continues. Another source said that Vivendi is generally optimistic about all options to increase the value of TIM, but hopes to participate directly in the discussion.
A Vivendi spokesperson currently denies any contact with the fund and said that the French media group is still ready to cooperate with Italian authorities and institutions to achieve the long-term success of TIM.
The activism surrounding TIM comes at a time when Italy is preparing to deploy a multi-billion-euro EU recovery fund to promote the country’s digital connections and catch up with the rest of the EU.
In order to supervise TIM’s fixed-line power grid and other strategic assets, the state investor CDP holds a 9.8% stake in the former telephone monopoly, becoming its second largest investor after Vivendi.
After Draghi’s close ally Dario Scannapieco recently took office, CDP will present a new strategic plan on Thursday.
CDP has invested in Terna and Snam and the natural gas distribution network Italgas through its CDP Reti tool established in 2012 to hold shares in network assets.
The KKR plan can only be carried out with the consent of the government, because Rome has special anti-takeover powers that can protect companies deemed strategically important from foreign bids.
Since 2012, Italy has so far used these so-called “golden powers” four times to veto foreign interests in the country. Two of them have been under Draghi’s nine-month government.
TIM’s fixed network is also a key asset that supports the group’s total debt of 29 billion euros. On Friday, the credit rating agency Standard & Poor’s (S&P) further reduced it to below investment grade levels.
Standard & Poor’s stated that if TIM loses control of the combined entity, a single network project may weaken TIM’s business conditions, but it is impossible to assess the impact of potential transactions without knowing the details, because the proceeds can also help TIM reduce debt and withstand Decline in revenue.
The Italian daily newspaper “Evening Post” first reported the news of Sunday’s special board meeting.
Due to fierce competition from competitors such as Iliad, Vodafone (NASDAQ:), Wind Tre and Fastweb, TIM’s revenue has shrunk by one-fifth in the past five years.
(1 USD = 0.8859 Euro)
(Additional reporting and writing by Valentina Za; Editing by Andrew Heavens and David Evans)