Telecom Italia plans to do the splits

Telecom Italia's share price continued to hover below 30 euro cents on Friday as the market digested the plan presented by new CEO Pietro Labriola to split the operator into two separate units, paving the way for a probable rejection of KKR's bid and a potential, long-mooted merger with state-backed Open Fiber.

TIM's shares initially plunged more than 16% following the news, and have not gained much ground since. Investors will also not be impressed by 2021 results announced this week, with a net loss of €8.7 billion (US$9.6 billion) being recorded after a "domestic goodwill" impairment of €4.1 billion ($4.5 billion). Revenues were down 1.9% year-on-year, to €15.3 billion ($16.9 billion).

Figure 1: Telecom Italia (TIM) CEO, Pietro Labriola.
(Source: Reuters/Alamy Stock Photo)

TIM is due to make a decision on the €10.8 billion ($12.2 billion) offer submitted by investor KKR in the middle of March, but a takeover seems increasingly unlikely. Indeed, TIM is currently worth less than the amount offered by KKR.

TIM has also provided guidance for the 2021-2024 period, with group service revenues expected to grow by a low, single-digit rate. Group organic EBITDA is expected to be stable over the period, although a "low teen decrease" is anticipated for 2022. Group organic EBITDA after lease is expected to decline by a low single digit rate over the period, with a "mid to high teens decrease" forecast for 2022.

Group capex is expected to be around €4 billion ($4.4 billion) in 2022, €3.9 billion in 2023 and €3.8 billion in 2024.

Splitting up

As expected, Labriola proposed hiving off the group's Italian fixed network to separate the operator into two units.

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.

Furthermore, it appears that TIM, as previously speculated, will be selling its stake in Italian tower company Infrastrutture Wireless Italiane (INWIT), which it controls jointly with Vodafone. French investment fund Ardian has made an offer worth around €1.3 billion ($1.43 billion) for the shares in INWIT it does not already own.

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Ardian already owns a stake in the towerco via a holding company called Daphne 3 following a deal with Telecom Italia in 2020. The operator and Ardian respectively own 51% and 49% of Daphne 3, which in turn controls 30% of INWIT. Vodafone owns a 33.2% stake via Vantage Towers.

The various measures have the objective of improving TIM's balance sheet and strengthening its position on the highly competitive Italian market, where the operator competes with Iliad Italia, Vodafone Italia and WindTre.

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— Anne Morris, contributing editor, special to Light Reading