TIM aims to hammer out single network deal this month

Italian operator group TIM has formally agreed to begin talks with CDP with a view to defining the terms of a merger with Open Fiber by the end of April.

At this stage, the two companies have simply signed a non-disclosure agreement to enable them to open discussions, but this could be an important step in the creation of a single high-speed fibre network in Italy through the integration of TIM’s fixed network assets and Open Fiber’s wholesale fibre infrastructure.

And the move could bring about an end to KKR’s ambitions to take control of TIM.

In a short statement made at the behest of the Italian stock market regulator Consob, TIM confirmed that it has inked the agreement with CDP Equity, the private equity arm of state-backed Cassa Depositi e Prestiti (CDP) Group, which holds a 60% stake in Open Fiber. CDP is also one of TIM’s major shareholders, with a stake of just under 10% as of the end of last year.

“The purpose of the agreement signed today is to start negotiations with the goal of agreeing, indicatively by 30 April, on a memorandum of understanding to define the objectives, the perimeter, the structure and the main evaluation criteria and parameters related to the integration project,” the Italian incumbent said.

It’s a small step, but a step forward nonetheless, presuming the end goal is to create a single Italian network, that is.

The Italian government’s appetite for a single national network appears to have waxed and waned over the past couple of years, in no small part due to a change of personnel. The biggest stumbling block for the current government was the potential impact on competition, given that TIM had brokered a deal to enable it to take majority control of the new entity. While that seems fair on one level, given that the telco would contribute the bulk of the assets, the fact that TIM would also offer retail services over that network raised some serious questions.

Now, according to sources cited by Reuters, under the new plan CDP would take control of the merged operator, which would ease antitrust issues. There is still KKR to consider though.

The private equity firm holds a 37.5% stake in FiberCop, the business TIM set up to house its last mile assets, specifically its full fibre network, a move that was designed to facilitate the much-discussed merger with Open Fiber. Further, KKR lodged a €10.8 billion takeover bid for TIM in November last year, an offer TIM largely ignored until a couple of weeks ago when it agreed to open discussions with the company.

This latest announcement regarding CDP is perhaps a further sign that TIM is keen to push on with its own strategy, rather than accepting KKR’s plans. Or at least, that it is exploring every possible option; let’s not forget it has also had an approach from CVC Capital Partners about its enterprise assets and there are reportedly others waiting in the wings.

Reuters claims that despite ceding majority control of a merged networks business, TIM could still seek to involve KKR at a later stage. Whether such a move would find favour with KKR probably depends at least in part on the outcome of talks between it and the telco.

The newswire’s sources also shared that a letter from KKR will land on the desk of the powers that be at TIM on Monday insisting on the right to carry out due diligence – something it has been requesting for a while – or it will not pursue a formal bid. TIM is apparently blocking the due diligence process until there has been a formal offer from KKR. The telco’s board is slated to discuss both KKR’s letter and the CVC proposal at a meeting on Thursday.

However, it’s already starting to look like KKR and TIM are a long way from being a match made in heaven. It’s hard to see how such a deal could be pushed through.

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