TIM aims to maximise value and cut debt in break-up

Telecom Italia will pursue a plan to split its landline network from its service operations to maximise asset value for all shareholders and cut its debt pile, the head of the company said on Sunday.

Under pressure for years in its fiercely competitive domestic market, Italy’s former phone monopoly is seeking to revamp its business via a separation of its domestic fixed network assets to focus on consumer and commercial activities.

As part of a preliminary pact sealed with Italian state lender CDP last week, TIM’s network assets would be combined with those of state-backed broadband rival Open Fiber to create a single national network company majority-owned by CDP.

CDP, which is TIM’s second-largest investor with a 10% stake and owns 60% of Open Fiber, will control the combined network, the statement said, adding that the parties aim to negotiate a binding deal by the end of October.

The long-awaited preliminary agreement was also signed by infrastructure funds Macquarie and KKR which hold minority stakes, respectively, in Open Fiber and in TIM’s last-mile network unit.

Both funds will remain minority investors in the single network entity.

KKR came round to joining the TIM-CDP project after TIM spurned a 10.8 billion euro ($12 billion) proposal by the U.S. fund to gain control of TIM and delist it before splitting its fixed and services assets.

After jumping 5% in early trade, TIM shares were trading up 2.3% by 1330 GMT, outperforming a flat Italian blue-chip index.

Italy is keen to create a single broadband network champion to avoid duplicating investments and to speed up a fibre optic roll-out and digitalisation of its economy.

CDP also controls regulated gas and power grid companies Snam and Terna.

Lengthy process
Analysts estimate that finalising any transaction would take as much as two years as a deal will be subject to the approval of national and EU antitrust authorities. TIM’s shareholders will also have to vote on it.

Under pressure for years in its hyper-competitive domestic market, debt-laden TIM is looking to raise cash by hiving off its landline network, an asset analysts value at between 15 billion and 20 billion euros.

TIM’s shares have fallen more than 35% this year and remain near a record low level they hit in March after the company reported a record annual loss and the KKR bid vanished.

Parting ways with its network infrastructure will give TIM cash to develop data and connectivity services for consumers and businesses, CEO Labriola said in a message to staff seen by Reuters on Monday.

Options being discussed for the final structure of the deal with Open Fiber include an outright sale of TIM’s network assets, comprising international cable unit Sparkle, sources have told Reuters.

The new network entity will take up a significant portion of TIM’s debt and domestic staff.

Broker Equita said a 100% exit from the network would maximise TIM’s proceeds, while boosting chances of antitrust approval.

TIM and CDP had signed a preliminary agreement in 2020 but that plan, which envisaged TIM keeping a majority stake in the combined entity, ran aground due to political, regulatory and valuation issues. Reuters