TIM network buyout delay favours KKR

TIM’s board meets as scheduled on Friday to discuss KKR’s offer to buy into the telco’s networks business, despite the fact that the firms have pushed back their deal deadline by a month to accommodate a request from the government.

Unexpectedly, perhaps, that call from government increases KKR’s chances of success in its overtures to the Italian incumbent. Essentially, the investment group now looks like a more likely partner to the state than it did before.

TIM confirmed earlier this week that it had received a letter from KKR extending the deadline for its NetCo bid until 24 March. Earlier this month KKR submitted a non-binding offer for a non-specific stake in TIM’s networks business, without sharing a public price tag. That NetCo business comprises TIM’s fixed-line business, its FiberCop fibre-to-the-home (FTTH) unit, and international wholesale operator Sparkle.

TIM committed to making a decision at Friday’s board meeting, although we now know that will not happen. At the time we suspected that there would be other bids on the table by the time the meeting took place, and indeed it seemed a joint bid from Cassa Depositi e Prestiti (CDP) and investment partner Macquarie would materialise. Thus far nothing has emerged, though, and KKR is clearly very much still in it. And CDP could be too.

“The extension of the deadline is due to a request by the Government to have an additional four weeks to carry out an analysis of the public aspects of the transaction concerning the powers exercisable by the Government in the sector,” TIM said, in a statement.

“However, KKR has confirmed its willingness to continue a constructive dialogue with TIM and to proceed with due diligence activities.”

There’s not a lot to go on in that statement, but reports in the Italian press indicate what we might well be able to surmise from it: there is a growing likelihood of KKR partnering with a state-backed entity of some sort to buy into TIM’s networks business.

The Italian government intends to place a public entity alongside KKR to bid for NetCo, Il Corriere della Sera reports, listing a number of possible options, including CDP, Poste Italiane, transmission grid operator Terna, and government agency Invitalia.

However, the paper – as well as various other Italian news outlets – notes that all bring with them possible antitrust issues. Indeed, having once been dubbed as the most likely to bring about a single network in Italy, CDP now seems mired in antitrust concerns, being the majority shareholder in Italy’s other major fibre network, Open Fiber; it’s genuinely unclear what has changed on that score. Nonetheless, the fact that CDP is also a shareholder in Poste and Terna could apparently cause problems from a competition point of view. That makes sense, of course; the whole single network project felt like an anti-competitive endeavour from the get-go. But that didn’t seem to be troubling the state too much…until now.

Il Corriere also points out that Italy’s Economy and Finance Ministry is the majority shareholder in Invitalia, which brings similar issues.

Its sources point to talks between the government and Maurizio Tamagnini’s asset management company Fondo Strategico Italiano with a view to creating an investment vehicle to manage state involvement in NetCo alongside KKR, which would take a minority stake. That seems like a credible outcome, as, in fact, does any kind of state tie-up with KKR, whether or not it involves CDP.

A few weeks ago, KKR looked set to serve merely as a vehicle to help TIM and its shareholders value the networks business. Now, the US group is very much in the mix. But there is still a lot of talking to be done, at Friday’s board meeting and beyond.

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