TIM closes in on Open Fiber merger deal

The long-mooted plan of Telecom Italia (TIM) to spin off its fiber network assets and merge them with state-backed rival Open Fiber took a big step forward this week, with the announcement that a preliminary agreement has now been signed with a number of interested parties.

The Italian telecom operator issued a statement late Sunday confirming that it has signed a non-binding memorandum of understanding with state lender CDP Equity as well as US investor KKR and Macquarie Asset Management.

TIM noted that the aim of the MoU is to start a process that would ultimately lead to the creation of a single fiber network operator in Italy, controlled by CDP Equity and also involving KKR and Macquarie. The intention is to sign any binding agreements by 31 October 2022, although regulatory clearance will be the next big hurdle to overcome.

Figure 1: Italian operator TIM and state lender CDP have signed a preliminary agreement, with backing from KKR and Macquarie Asset Management.
(Source: Arcansel/Alamy Stock Photo)

The merger effectively involves some of the key players that have invested in TIM's fixed-line business and Open Fiber. KKR owns 37.5% of TIM's FiberCop fixed-line business. CDP owns 60% of Open Fiber and about 10% of TIM, while Macquarie holds a 40% stake in Open Fiber.

TIM originally started formal merger talks with CDP in April, as it pursued an alternative path to a takeover by KKR, which submitted a €10.8 billion (US$11.6 billion) non-binding offer for the group in November 2021.

Divide and conquer

Meanwhile, CEO Pietro Labriola is working on a turnaround plan that involves separating TIM into two units by splitting infrastructure assets from services operations.

More about the new structure is expected to be revealed on July 7 and will also form an important element of the Open Fiber merger process.

Labriola previously indicated that a unit called 'NetCo' would incorporate the operator's fixed network assets as well as the domestic wholesale and Sparkle's international businesses. 'ServCo,' meanwhile, would hold all the remaining assets including the mobile business, enterprise services including cloud unit Noovle and TIM Brasil.

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In the meantime, the operator is fighting to keep its head above water in the highly competitive Italian telecoms market. In Q1 2022, TIM posted a net loss of €204 million ($219 million) at parent group level, while domestic sales, which account for about 80% of group revenue, fell 7.7% to €2.85 billion ($3.1 billion).

The operator also remains burdened by debt. At the end of March 2022, its net financial debt stood at €22.6 billion ($24.3 billion).

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— Anne Morris, contributing editor, special to Light Reading