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Telecom Italia ponders asset sale as KKR asks to see its workings

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Sources say the telco is working with banks to devise a better plan as shareholders and unions warn of asset stripping

Telecom Italia (TIM) is working with banks to draw up drastic new business plans as it assesses a buyout offer from US private equity financier KKR, says Reuters. It may be forced to spin off its valuable parts, but shareholders and unions are appealing against asset stripping.

Debt-laden TIM received a non-binding buyout approach from KKR in November that valued the former monopolist at €33 billion ($38 billion) including debt. TIM Group’s major shareholder, French media firm Vivendi, is not happy with the valuation as it effectively halves the value of its stake.

Power vacuum left board inactive 

There is also a power vacuum in the TIM Group board of directors created by the forced exit of its chief executive, Luigi Gubitosi, said Reuters. This has delayed the group's response to KKR.

Gubitosi’s fate was sealed by a disastrous billion euro rights deal Gubitosi struck with streaming agency DAZN to screen Italy's Series A football. By November the disappointing return on investment had generated two profit warnings, rather than revenue goals, in the period since July.

KKR has requested access to company data before making a formal bid in case there are further bombshells. KKR's offer is conditional on backing from the company's board and Italy's government, but TIM's biggest shareholder, Vivendi, has said it does not reflect TIM's value. 

The KKR proposal exposes Vivendi to a capital loss on its 24% TIM stake since it spent double the money, €0.505 euros per share, that it spent building its TIM shares. Vivendi has said it plans to relaunch the TIM group.

New three year plan

The new three-year plan, which will be drawn up on a standalone basis, will consider a series of options to boost value such as spinning off assets including its strategic network business, the Reuters sources said. 

TIM's fixed line network is the group's most prized asset and there have been calls from its next biggest shareholder, state lender Cassa Depositi e Prestiti (CDP), to rekindle a stalled plan to merge the network with fibre optic rival Open Fiber to boost returns and avoid duplicating investments. CDP owns 60% of OpenFiber.

The next crunch fixture is a board meeting scheduled for 26 January when TIM is expected to approve the guidelines of its new plan.

Italian trade unions said on Tuesday TIM's general manager Pietro Labriola, who has the support of Vivendi, had confirmed in a meeting the group was working on a new plan. The claimed that maintaining employment levels would be at the heart of the company's next moves. 

Labriola is practically in the chair

The unions want management to help the company together and appoint a new CEO, as soon as possible. A head hunter has been appointed and the process is expected to be finalised in January which suggests that Labriola, the head of TIM's Brazilian business, is the logical choice.

The Italian Communications Authority said on Tuesday that a scheme presented by TIM to help fund the roll out of fibre optic networks was compliant with EU rules aimed at boosting high speed internet coverage. 

TIM's co-investment plan envisages the involvement of other players interested in investing in FTTH networks to share long term risks.

The watchdog said it would begin a market test to gauge feedback.