KKR prepares binding bid for Telecom Italia’s grid as deadline looms

By Elvira Pollina

MILAN (Reuters) – U.S. fund KKR is preparing to submit a multibillion euro bid for Telecom Italia (BIT:)’s (TIM) landline grid by a deadline on Sunday as part of a government-backed plan to reshape the former phone monopoly, people familiar with the matter said.

A deal with KKR is the centrepiece of TIM CEO Pietro Labriola’s strategy to reshape the group, burdened with 26 billion euros ($27.6 billion) of net debt, and to allow a fresh start for the remaining services business which has been hard hit by price competition in its home market.

The final bid is expected to be broadly in line with KKR’s preliminary offer, valuing Netco — a venture comprising TIM’s fixed access network and submarine cable unit Sparkle — in the region of 23 billion euros when including some variable components, the sources said.

That total will likely include about 10 billion euros of debt and a payment of up to 2 billion euros linked to a potential future combination with state-backed fibre-optic operator Open Fiber, according to the sources.

KKR’s offer envisages NetCo absorbing about a half of TIM’s 40,000 domestic workforce, in line with plans previously outlined by the company, the sources added.

The sale has effectively been endorsed by Prime Minister Giorgia Meloni’s right-wing administration which authorised the Treasury to join KKR’s bid for TIM’s grid, an asset deemed of strategic national interest.

The Treasury plans to take a stake of 15-20% in the NetCo business for a total maximum amount of 2.2 billion euros as part of an agreement with KKR signed in August.

Italian infrastructure fund F2I is also vying to join the deal investing about 1 billion euros, according to a separate source, raising the combined stake in Italian hands to around 30%.

The entry of the Treasury and F2I will be likely implemented at a later stage, before the deal is closed, the sources said.

However, a smooth completion of the sale hinges on the backing of TIM’s top investor Vivendi (OTC:), which has expressed heavy reservations about both the price and the sustainability of the rump service business.

($1 = 0.9422 euros)