TIM starts exclusive talks with KKR over fixed assets

US private equity firm KKR has been doggedly submitting bids for the fixed network assets of Telecom Italia (TIM) for some time, and it seems that its patience has now been rewarded, at least for the time being.

As had been expected, TIM's board of directors agreed to grant a period of exclusivity to KKR as it deems its latest non-binding offer to be more attractive than a rival bid from Italian state-backed lender CDP and Australian fund Macquarie Infrastructure. Reuters suggests that KKR's bid could be worth around €23 billion (US$25.19 billion).

TIM CEO Pietro Labriola has now been instructed to start talks with KKR with the aim of agreeing on a binding offer by September 30 at the latest. If successful, KKR will take ownership of TIM's fixed network infrastructure, dubbed Netco, including the assets of FiberCop as well as a stake in Sparkle, TIM's international services unit.

The investor has long been interested in TIM, and has already invested €1.8 billion ($2 billion) in a 37.5% stake in FiberCop. It has even previously tried to buy all of TIM, submitting a €10.8 billion ($11.8 billion) non-binding offer to take the operator private, although that bid foundered because of a spat over due diligence.

Don't hold your breath

A deal with KKR would also support ongoing efforts by Labriola to revamp TIM's business, repair its battered balance sheet and restore value for shareholders.

However, history shows that it would be foolhardy to predict which way the talks might go, and whether or not KKR will succeed in its quest. Furthermore, TIM shareholder Vivendi, which voiced opposition to the previous bid by KKR to take TIM private, apparently still intends to fight a proposed sale of the landline network to KKR.

A report from the Financial Times said Vivendi, which holds a 24% stake in TIM, still believes that KKR's offer undervalues the network and that any sale would be a strategic mistake. The French media group apparently wants any sale of the fixed assets to fetch at least €31 billion.

CDP and Macquarie Infrastructure, meanwhile, already own TIM's fiber-optic rival Open Fiber. TIM's long-mooted plan to merged its fiber network assets with those of Open Fiber appeared to be making progress last year, when a non-binding agreement was signed in May and then extended to the end of November. Little appears to have been announced on the proposed merger since then.

The government of Prime Minister Giorgia Meloni has previously indicated it wants to retain public ownership of the wireline infrastructure.

TIM is also said to be sounding out investor appetite in a sale of a minority stake in its TIM Enterprise business unit, although no official confirmation has been made.

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— Anne Morris, contributing editor, special to Light Reading