TIM stalls KKR bid with ‘strategic options’ review

Ray Le Maistre
By Ray Le Maistre

Jan 27, 2022

  • Telecom Italia (TIM) is sitting on a takeover bid from private equity firm KKR
  • The operator’s board wants an alternative strategic option to being acquired
  • It has tasked its new CEO Pietro Labriola to draw up an alternative plan based on network asset divestments
  • This means TIM isn't much further forward than it was in 2020 – how long can it stall KKR?

The board at TIM (Telecom Italia) has further stalled its feedback on the €10.8 billion takeover offer from private equity firm KKR by handing its new CEO Pietro Labriola “a mandate to explore strategic options to maximize shareholder value, with specific reference to the Group’s infrastructure assets, including solutions that go beyond vertical integration,” and is looking for some options from the new chief executive when he presents a 2022-2024 ‘industrial plan’ to the board on 2 March.

Roughly translated, this means Labriola has five weeks to drum up an asset divestment plan that will be more appealing to investors than KKR’s offer – and as well as having little time, he doesn’t have too many easy options either. Let’s hope he has a large stash of strong espresso beans at home, because he’s going to burning the midnight oil during February.

Labriola’s main option is to figure out a way to spin out and financially capitalize on TIM’s fixed access unit, FiberCop, which is building an extensive fibre access network that will reach 75% of rural premises as well as cover cities and towns (16 million premises in total), and for which, it’s worth noting, TIM already has some external investor partners.... including KKR (which holds a 37.5% stake that cost it €1.8 billion).

That spin out process has long been linked to a merger with Open Fiber, FiberCop’s main wholesale FTTP rival in Italy that is owned by the Italian government’s CDP Equity (60% stake) and Fibre Networks Holdings (a unit of infrastructure investor Macquarie Group). State investor CDP is also a significant shareholder in TIM (almost 10%). 

That “will they, won’t they” drama has been running since 2020 and, due to a combination of political opposition/disinterest and wrangles over who would have strategic decision-making control over the resulting merged entity, a stalemate has been firmly established. Various reports in the Italian business press during the past month or so, however, have suggested an agreement could be reached between the various parties that would result in CDP being the prime stakeholder in a merged, national wholesale fixed line network (TIM had previously always demanded control of the resulting entity).

Can Labriola broker that deal and break that stalemate? Or come up with an alternative plan for FiberCop that would satisfy investors (including Vivendi, TIM’s largest single and understandably stubborn shareholder), the Italian government, the European Commission, and wholesale customers? That’s a lot of approvals to gain... especially when one of the investors that needs appeasing is KKR. In Labriola’s favour is that Vivendi is supportive of his appointment and will be an influential ally in the boardroom.

Asset divestment isn’t Labriola’s only challenge, of course: Italy’s national operator needs a refresh of its consumer and enterprise service offerings that can help reverse its financial slide – 2021 was littered with profit warnings and missed targets, not helped by an expensive and contentious football broadcast rights agreement with DAZN that failed to deliver the anticipated broadband subscriber boost.  

In the meantime, the TIM board is shuffling the KKR bid papers in the hope it can buy a bit even more time: The bid was first made in late November, two months ago, and the only public response so far from TIM has been that it’s considering the offer. The operator noted in this announcement that the committee appointed to decide whether KKR’s bid is worthy of serious consideration “is continuing to work with the Committee’s financial advisers to analyze the expression of interest and compare it with the Group’s outlook and strategic alternatives that will be considered under the [industrial] plan.”

How long will KKR patience last? Is Labriola the strategic maestro that TIM needs to revive its fortunes and share price, which is currently languishing at a meagre €0.41, giving it a market capitalization of just €8.5 billion.

Stay tuned... 2 March might bring the multiple TIM storylines together and set the scene for a more uplifting new season. 

- Ray Le Maistre, Editorial Director, TelecomTV

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