KKR's TIM bid could prove to be a stalking horse

TIM last week confirmed that it has received a new offer from KKR for its network assets, but while it has committed to examining the bid, it has made it clear that it is also open to other options.

The Italian incumbent disclosed that it has had a non-binding offer from KKR for the purchase of a stake in an as yet to be established company that will house its fixed network assets. It didn’t have much else to say on the matter: we do not know what size of shareholding is in play – “a stake to be defined,” according to TIM – nor how much KKR is willing to part with.

We do know that the networks outfit in question aligns with the planned company split TIM announced back in July though. NetCo comprises TIM’s core fixed-line business, its FiberCop fibre-to-the-home (FTTH) unit, and international wholesale operator Sparkle. And it is NetCo KKR is keen to get its hands on. The investment firm, which already holds a 37.5% stake in FiberCop, failed in a bid for the whole of TIM tabled in late 2021, but at the back end of last year was rumoured to be interested in the network assets. That makes a lot of sense, given the global investment community’s ongoing enthusiasm for infrastructure assets.

KKR’s existing links with TIM make it an obvious candidate to invest further. And TIM is clearly taking the offer seriously. But there are many strands to this story, as a later statement from TIM demonstrates.

“TIM’s Board of Directors, which met under the chairmanship of Salvatore Rossi, has decided to convene again on February 24 to decide on the non-binding offer received from KKR for NetCo,” the telco said.

And then the important bit:

“TIM remains open to evaluating any alternative that may materialise in the meantime, and will continue its dialogue with its stakeholders.”

There are many parties involved in TIM’s future, one way or another, so it’s no surprise that there will be further discussions. But the operator’s decision to formally state that it is open to other offers suggests that it may be treating the KKR bid like a stalking horse. The investment group will help it both to put a price on its networks, and to kick any other would-be investors – including the government – into action.

Various sources are starting to coalesce on the subject of price, which was one of the main issues that contributed to the derailing of TIM’s merger plan with Open Fiber last summer. Bloomberg and Reuters have gone for around €20 billion and north of €20 billion respectively, including debt, while Italy’s Key4Biz claims the offer values NetCo at between €16 billion and €20 billion. That’s the area TIM shareholder and state lender Cassa Depositi e Prestiti (CDP) was reportedly looking at, but falls some way short of the €30 billion-plus Vivendi – TIM’s biggest shareholder – purportedly wanted. The resignation of Vivendi CEO Arnaud De Puyfontaine from TIM’s board last month perhaps indicates that a deal may be easier to broker now, but the French firm is still committed to protecting its investment in TIM.

CDP itself was due to make an offer for TIM’s network last year as part of Italy’s single network plan, but ultimately no bid came, in part due to valuation issues, but also because of the change of government in Italy.

Giorgia Meloni’s administration killed off the existing single network project, but said it would work to create a new plan, although none has been forthcoming. However, the new PM made it clear that she is looking to renationalise the TIM network – a strategic national asset – one way or another, and the government recently indicated that having a publicly-owned network was its primary goal, casting doubt over whether there would be any need for a TIM-Open Fiber partnership.

The question now is whether TIM is effectively goading CDP to make a counter-offer to KKR, as the wording of its statement suggests, or whether there’s another solution here.

There has been a lot of talk in Italy about the likelihood of the government refusing to let the TIM networks fall into foreign hands, something which could well go against US-based KKR. But let’s not forget that the KKR offer relates to a stake of undefined size, so there’s no reason the state couldn’t team up with the PE firm, should all sides be able to agree.

Whatever the outcome, TIM clearly wants to get on with it; that 24 February board meeting is less than three weeks away.

In the meantime, it has a network outage to deal with. Great timing…

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