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Italian government battles to save key Telecom Italia assets from loss in KKR takeover

News

Industry minister Giorgetti tells conference that state cannot relinquish control of its backbone network

Italy must keep control of Telecom Italia's (TIM) key strategic assets in any takeover, Industry Minister Giancarlo Giorgetti said on Wednesday. Reuters reported this as a ‘clear signal to KKR’, which is bidding to take over the nation’s flagship telco.

TIM has received a non-binding €10.8 billion euro ($12.27 billion) approach from the New-York private equity fund which aims to take Italy's biggest telecom’s group private. As a former monopoly TIM owns Italy's largest telecoms infrastructure. The government in Rome has the power to block any trading of assets deemed to be of national interest.

KKR takeover contingent on state approval

KKR’s takeover proposal needs the backing of both TIM's board and the Italian government, which owns a 10 per cent stake through state-owned lender Cassa Depositi e Prestiti (CDP). There is opposition KKR’s bid by TIM's biggest shareholder, French media group Vivendi, which insists that KKR's bid does not reflect TIM's value. It disputes the KKR contention that its own investment in shares has halved in value. CDP has called on it to revamp a project to merge its network assets with those of state-backed rival Open Fiber.

When asked was asked if KKR's bid might jeopardise such a plan, industry minister Giorgetti told a conference that “any takeover bid must take into account a framework within which the state cannot relinquish control".

Network assets are backbone of contention

KKR, which owns a 37.5 per cent stake in TIM's last-mile landline unit FiberCop, has not responded. Its proposal would split off TIM's network assets, with their management  delegated to CDP. Meanwhile, Italy's Treasury is examining ways to merge TIM's fixed network assets with Open Fiber's in order to create a wholesale-only unified network operator under the control of CDP, Reuter’s sources said.

There are clashing views within Italy’s government over how to solve debt-laden TIM’s problems. Innovation Minister Vittorio Colao, a former Vodafone CEO, says competition is the best way to expedite an ultra fast fibre rollout. By contrast the man regarded as TIM's CEO in waiting, general manager Pietro Labriola, is drafting a business plan on a standalone basis, which would provide a benchmark for the board to assess KKR's offer.

Reuter’s sources say Labriola is considering a range of options, including a split of TIM's network operations from its services business through a proportional demerger. This would apportion soe of the company’s debt and equity to the  services and network assets.