The talks could be the death knell for KKR’s €10.8 billion takeover offer, which has been on the table now for over four months
This week, Italy’s largest operator TIM has announced that it has signed a non-disclosure agreement with state investment bank Cassa Depositi e Prestiti (CDP) to begin official talks for the merger of their fibre network with that of rival Open Fiber.
The government-owned CDP, which owns a 60% stake in Open Fiber and a 10% stake in TIM, has long been in favour of such a merger.
The idea of merging the two companies’ networks to build a single national broadband network for Italy has been in discussion for at least two years now. The government has suggested that creating a single network would allow for a more rapid rollout of fibre technology, reducing overbuild and making the best use of European recovery funds. TIM, meanwhile, had been loathe to relinquish control of one of its most valuable assets, arguing that it should get the controlling stake in any joint venture.
However, circumstances have changed in recent months.
In November last year, US investment firm KKR approached TIM with a €10.8 billion takeover offer, plunging the Italian operator into a management crisis that saw then-CEO Luigi Gubitosi replaced by Pietro Labriola, ex-CEO of TIM Brasil.
Labriola brought with him a plan to restructure TIM and bolster its financial profile, including separating the company’s infrastructure and service arms into separate units.
Such a separation would not only make pursuing a merger with Open Fiber more feasible for TIM’s infrastructure arm but would also simplify the route for further private investment in the company’s enterprise service arm. Unencumbered by an expensive network rollout, TIM’s services unit, including its cloud, IoT, and IT subsidiaries, would become a far more attractive prospect; in fact, at the end of last month, UK-based investment firm CVC announced it had approached TIM with a non-binding proposal to purchase up to a 49% stake in this part of the business if a spin off does indeed proceed.
According to analysts, the bid that could be worth around €5 billion.
Clearly, TIM has found itself at something of a crossroads in 2022, having to choose between a potential takeover offer or a restructure that could fundamentally redefine the company itself.
Now, with the announcement that formal talks are beginning with the CDP, it seems that the chances of KKR’s takeover materialising are beginning to slide. The investment firm has been waiting for a response to its non-binding proposal for four months now, with formal talks between two companies only agreed to earlier this month.
Reports suggest that KKR is set to restate its interest in a possible bid and once again request due diligence from TIM, noting that market conditions have changed greatly since their first expression of interest last year.
Another potential solution could be for KKR to invest directly in TIM’s separated infrastructure unit, thereby taking a significant role in any single network plans.
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