TIM network sale chaos may carry on until Christmas

KKR has finally submitted a binding offer for TIM’s network assets and it might be bigger than expected, but it could be the end of the year before we have any clarity on how it’s going to pan out.

Indeed, the short statement issued by the Italian incumbent confirming that KKR had stuck to its latest deadline actually created more confusion, not less. KKR appears to be making a separate bid for international network business Sparkle and that too could easily drag on until Christmas.

TIM said the binding offer KKR has tabled for NetCo expires on 8 November, but carries the option of a possible extension until 20 December.

“As soon as the analysis will be finalised, the binding offer will be brought to the Board of Directors’ consideration without delay,” TIM said. 8 November happens to be the date the TIM board is due to meet to approve its third-quarter financial results.

It also explained that KKR has formulated a non-binding bid for its stake in Sparkle with a view to submitting a binding offer with four-to-eight weeks, following the completion of due diligence. It added that KKR has requested an exclusivity period on Sparkle until 20 December.

To be clear, when it first announced the creation of NetCo in summer 2022 TIM included Sparkle as one of its assets, so we had been working on the assumption that the business was part of the KKR deal. Now it seems that the assets could end up being sold off via separate transactions.

Indeed, as Il Sole 24 Ore noted on Monday, it is not yet clear whether the two deals will progress in parallel and eventually become intertwined, or whether TIM could open a separate competitive procedure for the submarine networks business. In the case of the latter, the Italian financial paper points out that there is a high chance of a public company taking over Sparkle, given its strategic importance for the government. Naturally, state-backed lender, TIM shareholder and one-time potential NetCo buyer Cassa Depositi e Prestiti (CDP) is the most likely candidate.

The paper adds that back when KKR and the CDP/Macquarie consortium were battling to become TIM’s preferred bidder for NetCo – the telco picked KKR in June after months of back-and-forth – rumours swirling in the market suggested KKR valued Sparkle much higher than CDP did; €1.5 billion versus about €700 million, to be precise.

That could make life interesting for TIM’s directors. State pressure to go with a public company despite a much lower price tag is unlikely to find favour with already disgruntled shareholder Vivendi, for example.

The French group remains a sticking point in this process and could yet seek to derail it entirely, but without any official information on the price of any deal, it’s difficult to guess what it’s final stance will be.

According to Il Sole 24 Ore’s sources, KKR’s binding bid for NetCo has come in higher than expected, at close to €24 billion, including around €2 billion in earn-outs in the event of a future TIM/Open Fiber networks merger.

If KKR’s offer really has come in ahead of expectations, that should help to smooth the way and help TIM get a deal over the line. But predicting whether the Italian telco will have a cracker of a Christmas or end up with coal in its stocking is an impossible task at present; we could still be speculating on this deal in 2024.

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