Last week's speculation that Telecom Italia (TIM) and state lender CDP Equity were expected to start formal negotiations over a potential merger of TIM's fixed network assets with those of state-backed Open Fiber proved to be right on the button.

The Italian telecom operator issued a statement Monday confirming that it signed a non-disclosure agreement (NDA) with investment unit CDP on preliminary discussions about the matter. The aim is to agree with CDP by April 30 a memorandum of understanding to define the objectives, structure and main evaluation criteria for the integration project. CDP owns a 9.1% stake in TIM and 60% of Open Fiber.

Figure 1: The decision to start talks with CDP is regarded as a further sign that TIM is pursuing an alternative path to a takeover by US investor KKR.
(Source: Arcansel/Alamy Stock Photo)

The move is the latest twist in an ongoing saga involving bids from investment companies, plans for revamping Italy's incumbent operator and political desire to create a single fiber network company in Italy. The decision to start talks with CDP is also regarded as a further sign that Telecom Italia is pursuing an alternative path to a takeover by US investor KKR.

Quick recap

In a recap of recent events: KKR submitted a €10.8 billion ($11.9 billion) non-binding offer for TIM in November 2021. New CEO Pietro Labriola then outlined a plan to separate the Italian operator into two units by splitting infrastructure assets from services operations.

KKR's plan for Telecom Italia was said to be similar to that presented by the CEO. The US investor, which already owns 37.5% of Telecom Italia's FiberCop fixed-line business, also reportedly wanted to discuss the implications of an Open Fiber merger. However, reports have suggested that Labriola would prefer to keep the entire matter in the hands of TIM.

Perhaps because of the ambition to do it all internally, TIM seems to have been dragging its feet on dealing with the KKR bid. Indeed, the operator only started formal talks to assess KKR's offer in the middle of March – which was almost four months after the US investor made its initial approach.

Until now, KKR has remained keen on buying TIM and taking it private. However, signs of impatience are beginning to emerge. According to Reuters, which cited unidentified sources, KKR is expected to tell TIM in a letter today that it will not submit a formal bid unless it is able to carry out due diligence as requested from the start.

Indeed, KKR's inability to start due diligence proceedings has been a major bugbear of the investor since it first made its offer. TIM apparently wants a formal offer to be made first.

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It doesn't stop there. Last week, TIM received a non-binding proposal from UK-based CVC Capital Partners for a minority stake in the new enterprise services unit that would be created under Labriola's proposals.

Reuters said TIM's board is expected to discuss KKR's letter and the CVC proposal on April 7. Perhaps then the Italian operator will reveal more about which way it intends to go.

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— Anne Morris, contributing editor, special to Light Reading