TIM braces for AGM decision as NetCo sale looms

Telecom Italia (TIM) will soon face a critical moment as it counts down the weeks and days to the completion of a plan it has been working on for a couple of years, namely the proposed sale of its fixed-line grid (NetCo) to an investor group led by KKR.

On April 23, the Italian operator's shareholders will convene to vote on a number of matters, including renewing the mandate of current Telecom Italia CEO Pietro Labriola as part of a new board that could also be reduced from 15 to nine members. Alberta Figari has been proposed as a new candidate for the position of chairman, replacing Salvatore Rossi.

TIM and Labriola himself are maintaining a confident stance in the meantime, amid reports that some shareholders are seeking to upset the NetCo applecart and that further delays could be possible.

For instance, activist investor Bluebell Capital Partners is apparently proposing Laurence Lafont, outgoing vice-president for strategic industries at Google Cloud, as a candidate for the role of CEO.

Minority investor Merlyn Partners has also been stirring things up, proposing former TIM deputy general manager Stefano Siragusa as CEO and calling for an even more radical restructuring that would include the sale of TIM's Brazilian unit as well as its consumer business.

French media group Vivendi, which is TIM's largest shareholder with a 24% stake, has long voiced opposition to the NetCo sale and questioned the viability of the residual business.

On a more positive note for TIM, proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis have urged shareholders to support the slate of board nominees put forward by the outgoing board.

All fingers crossed 

Labriola is seeking a new term to bring to fruition his efforts to reshape the debt-laden group and provide it with a new industrial strategy for the future.

If all goes to plan, KKR's Optics Bidco investor group is due to buy NetCo in a deal that could ultimately be worth up to €22 billion (US$23.4 billion). Canada Pension Plan Investment Board (CPP) recently entered into an agreement to join the investor group, a move that will give it a 17.5% interest in the fixed business.

Optics Bidco, which also includes involvement from a wholly owned subsidiary of the Abu Dhabi Investment Authority, Italian infrastructure fund F2i and the Italian government, agreed to acquire NetCo for €18.8 billion ($20 billion) in late 2023.

Once the sale of NetCo goes through, TIM will operate as a service company (ServiceCo), retaining its retail consumer and enterprise businesses and its mobile network, for example. Bloomberg reported this week that KKR could appoint Luigi Ferraris, who is currently head of state-controlled rail company Ferrovie dello Stato, to run the network business.

Bringing this complex deal together has certainly been no easy feat, as Labriola recently remarked. In addition, markets did not respond well to the details of the new industrial plan, called "Free to Run," when it was presented in March.

Since then, it seems that Labriola has been spending his time talking to shareholders and media outlets to assure them that his way is the right way, and that everything is on track for completion by the summer.

In a recent interview with Bloomberg, he confirmed he is "one hundred per cent" confident that that deal will go through by the end of the summer and claimed it will contribute to €5 billion ($5.3 billion) in upside at the company. He said a court case TIM recently won and the sale of other assets, including submarine cable unit Telecom Italia Sparkle, will also contribute to this. However, he dismissed calls to sell TIM Brazil, which he described as a "cash cow."

TIM has also negotiated a €1.5 billion ($1.6 billion) bridging loan to help tide it over until it manages to offload its fixed-line infrastructure.

Labriola is clearly aware that TIM's NetCo sale is being closely watched by the rest of the world. He suggested that other operators in Europe could follow suit by formally splitting infrastructure from the services business, "because these are two different business models that are [on] two different paths of growth."