Telecom Italia (TIM) appears to have set off on a two-pronged course as it continues to seek a way to revamp the business, repair its battered balance sheet and restore value for shareholders.

After newly appointed CEO Pietro Labriola presented his new industrial plan that would see the operator split into two separate units, it was suggested that TIM was paving the way for a rejection of a bid submitted by US investor KKR last November, while preparing for a potential, long-mooted merger with state-backed broadband operator Open Fiber.

It now seems the operator is trying to keep all options on the table for the time being, announcing that it will now start formal talks with KKR and also explore a merger with the rival fiber provider.

Figure 1: The operator will continue negotiations with state lender CDP on a possible merger with Open Fiber. CDP owns a 9.1% stake in TIM and 60% of Open Fiber.
(Source: Arcansel/Alamy Stock Photo)

The latest developments come after a meeting by TIM's board of directors on Sunday. In a statement released shortly afterwards, the Italian operator said its advisers have been engaged in informal talks with KKR since the investor submitted its €10.8 billion (US$11.8 billion) non-binding offer to buy TIM and take it private.

In a next step, Labriola and TIM chairman Salvatore Rossi will seek more information "regarding the attractiveness and deliverability of the potential offer from a financial and industrial point of view."

At the same time, the operator will continue negotiations with state lender CDP on a possible merger with Open Fiber. CDP owns a 9.1% stake in TIM and 60% of Open Fiber.

Mixed messages

KKR's plan for TIM is reportedly similar to that presented by Labriola, in that both propose separating infrastructure assets from services operations. Labriola is said to be convinced that implementing the revamp internally could generate more value for investors.

Reuters reported that TIM had hoped to secure a preliminary agreement with CDP over Open Fiber in time for Sunday's board meeting. However, sources close to the matter told the news agency that discussions over a tie-up that would attract European regulatory scrutiny will require longer.

Reuters quoted a research note from Exane BNP Paribas, which said: "Management have shifted message...and are now pushing the Open Fiber merger angle once again...In the short term the hope of 'something' happening is probably enough to continue to draw a line under the shares."

KKR has apparently not yet commented on the latest development. It was reported last week that the investor is still interested in buying TIM, albeit at a lower price of around €0.40 per share, compared with €0.50 per share offered in November.

Meanwhile, Labriola's plan to hive off the group's Italian fixed network and separate the operator into two units has won the backing of Vivendi, TIM's largest shareholder with a 24% stake.

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According to a Seeking Alpha transcript of Vivendi's earnings call for Q4 2021, the French media group's chairman and CEO Arnaud de Puyfontaine said Labriola "has built a team ... that has presented to the board a plan which is fully backed by Vivendi."

De Puyfontaine added that TIM, under the new leadership, is "in a position to deliver on its promises and to get to a value which is much higher than the current share price, and which will be able to bring back the company where it should be."

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— Anne Morris, contributing editor, special to Light Reading