TIM, CDP expect to begin merger talks as KKR alternative

Telecom Italia and state lender CDP are expected to start formal negotiations over a potential merger of TIM’s network assets with those of state backed Open Fiber, two sources familiar with the matter said.

The negotiations would come as TIM boss Pietro Labriola presses ahead with a plan to revamp Italy’s biggest phone company centred around a split of its wholesale network operations from its service business.

The sources said CDP and TIM are expected to ink a confidentiality agreement (NDA) in the early days of April.

While discussions with KKR over the U.S. fund’s takeover approach for TIM are ongoing, TIM and CDP’s plans to sign off on an NDA would mark a further step in an alternative direction to the bid.

A person familiar with the U.S. fund’s thinking on Wednesday said KKR was pessimistic about the prospects of its bid, which it has said it would only pursue with the backing of TIM and the Rome government. KKR declined to comment.

A top government adviser last week said Rome’s goal remained that of creating a single broadband network in Italy. This can be achieved by merging TIM’s fixed assets with those of Open Fiber, which is 60% owned by CDP.

CDP also owns 10% of TIM and would retain control of any combined network as it oversee other key infrastructurein the country.

CDP has said the tie-upwould avoid costly duplication of investment needed to upgrade the national network for Italian households and businesses.

Hindered by antitrust issues, a TIM-Open Fiber deal has proved elusive so far.

Price gap
KKR, which has already invested 1.8 billion euros for a 37.5% stake in TIM’s last-mile fixed-line network last year, submitted an indicative bid to buy the group in November.

While a merger of Open Fiber was not part of KKR’s plans for TIM, the fund wants to discuss with the company the antitrust implications of a such a deal and how it can create value for the FiberCop business in which KKR is already an investor.

TIM’s top shareholder Vivendi has billed KKR’s proposal as too low even though it was pitched at 0.505 euros. TIM shares traded at 0.33 euros on Thursday.

TIM left the New York-based fund waiting for nearly four months without an answer before agreeing earlier in March to engage in talks, while pressing ahead with its standalone reorganisation to unlock the group’s “untapped value”.

Sources have said TIM asked KKR to clarify by Monday whether the price of 10.8 billion euros for the equity was confirmed. TIM and KKR are at odds over a due diligence analysis KKR wants to perform before making a formal offer, while TIM has said it can only have confirmatory nature, meaning it would have preceded by a formal offer.

“The problems here go well beyond disagreements over the due diligence, there is little appetite on TIM’s part and Rome’s to work on KKR’s takeover project,” a source familiar with the negotiations said. Reuters