Telecom Italia and CDP start network talks as KKR bid fails

The Tim logo is seen at its headquarters in Rome, Italy November 22, 2021. REUTERS/Yara Nard/File Photo

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  • TIM and CDP sign non-disclosure agreement for formal interviews
  • CDP-controlled TIM and Open Fiber seek to merge networks
  • KKR will not pursue any offer without due diligence -source

MILAN, April 3 (Reuters) – Telecom Italia (TIM) (TLIT.MI) has signed a nondisclosure agreement with Italian public lender CDP to start formal talks on the possibility of combining the telephone group’s network with that of ‘Open Fiber, a smaller broadband competitor.

The move comes as TIM boss Pietro Labriola pursues a plan to reorganize Italy’s largest telephone company, centered on separating its wholesale network operations from its services business.

The start of the talks, announced by the company on Saturday, is another sign that TIM plans to chart a different course than a non-binding approach for all of its business carried out by US fund KKR (KKR.N) in November.

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TIM made KKR wait four months before agreeing in March to start talks, while continuing its self-sustaining reorganization to unlock what the group calls its “untapped value”.

A source familiar with the matter said KKR will say in a letter on Monday that it will not pursue a formal offer unless TIM gives it the due diligence the fund has been requesting for months, which has become more crucial as the market situation changes due to the Ukrainian conflict.

TIM, who asked KKR to comment on whether the terms of its €10.8 billion approach still stand, said the review could only be confirmatory in nature, meaning it should be preceded of a formal offer. Read more

TIM’s board is expected to discuss KKR’s letter and a separate proposal from private equity firm CVC for a stake in its business services business on April 7.

SINGLE GRID

Rome was keen to merge TIM’s fixed assets with those of Open Fiber to avoid costly duplication of investments needed to upgrade the national network, but a deal proved elusive due to antitrust concerns.

TIM said it aims to agree with the CDP by April 30 on a memorandum of understanding to define the objectives, structure and key evaluation criteria for the integration project.

Open Fiber is 60% owned by CDP, which in turn also owns 10% of TIM. As part of the combination plan, state-owned CDP would take control of the merged network, sources said, which could ease antitrust concerns because TIM would no longer hold a majority.

Sources said TIM may later agree to a compromise with KKR by involving the fund in its plans to tie up with Open Fiber. KKR already has a 37.5% stake in TIM’s last mile network.

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Reporting by Elvira Pollina and Agnieszka Flak Editing by Alison Williams, Mark Potter, Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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