KKR offered to take on extra costs, staff to sweeten TIM bid-sources

By Elvira Pollina

MILAN (Reuters) – U.S. fund KKR has strived to structure its offer for the fixed line of Telecom Italia (BIT:) (TIM) in a way that would help the phone group more easily sustain its business after parting ways with its most valuable asset, two sources close to the matter said.

As part of a plan backed by Italy’s government, KKR this week tabled a multi-billion binding offer for the former telecoms monopoly’s domestic access network.

KKR is already an investor in TIM’s grid. The Treasury also plans to buy 20% of the network for up to 2.2 billion euros.

The offer values the grid operations, which include fibre and cables stretching from switching centres to customers’ homes, above 20 billion euros, with roughly half the figure as debt, the two sources told Reuters.

KKR has also offered to sustain a number of extraordinary costs under a 20-year supply contract regulating the relation between the network company, dubbed NetCo, and TIM’s remaining service operations, the sources said.

Once it disposes of its ageing network, TIM will still need to use it to provide connectivity services to its clients. The grid entails significant maintenance and upgrade costs.

The sources said the non-monetary terms KKR offered could add 1 billion euro to the value of its proposal.

TIM advisers have only started examining the several hundred pages containing KKR’s complex offer.

NetCo would take on some 21,500 workers, more than half of TIM’s domestic staff, a higher number than envisaged by an earlier, non-binding bid, the sources said.

The offer also includes a possible future payment potentially worth more than 2 billion euros linked to the merger of TIM’s fixed access network assets with those of state-backed fibre operator Open Fiber, according to the sources.

KKR has also submitted a separate non-binding proposal for Sparkle, TIM’s submarine cable business which was initially part of the overall venture for which KKR was bidding.

The latest, separate offer for Sparkle values it at 600-700 million euros including debt, and would hand full control of it to the Treasury, which has already signalled its interest.