TIM shareholders say keep network, sell retail ops

A group of TIM’s minority shareholders has called on the Italian incumbent to cancel its plan to sell its fixed-line assets and instead offload its retail business and Brazilian operations.

The new plan comes from Merlyn Partners, a fund that represents shareholders collectively holding less than 3% of TIM. Alessandro Barnaba, one of Merlyn’s founders, and former TIM executive Stefano Siragusa have been working together for the past few months to come up with an alternative strategy for TIM, united in the belief that CEO Pietro Labriola is making a huge mistake in selling the network.

They have now unleashed their new plan, dubbed TIMValue, on the world via a dedicated website, and more specifically, in a letter to the TIM board delivered on Friday.

It’s a pretty wordy missive, but the message is straightforward: TIM’s network is a strategic asset and is worth more than would-be buyer KKR is willing to pay for it. Further, carving it out leaves the retail business in a vulnerable position. Instead, TIM should retain the networks business, including Sparkle, strengthen it (more on that below), and merge it with Open Fiber. And to sort out its balance sheet and address the debt pile, the telco should look to sell Tim Consumer and TIM Brasil.

“We believe our alternative plan is fully aligned with Government vision and has the potential to maximise value for all shareholders and stakeholders of the company safeguarding TIM workforce, ensuring NRRP execution and protecting the supplier base,” an English version of the document reads, covering a lot of hot button issues linked to the network sale.

Early indications are that the government is not keen on changing tack at this stage though. An official statement secured by Bloomberg notes that the government “rejects any proposal that is different to its previously announced strategy,” and reminds the industry that the KKR plan will also see Italy retain control of that strategic network asset via state-backed lender and TIM shareholder Cassa Depositi e Prestiti (CDP).

For its part, TIM acknowledged receipt of the letter and said it will submit it to its board at their meeting scheduled for Friday, provided it is able to verify Merlyn’s shareholding. Naturally, it made no comment on the content of the proposal, but reiterated that the proposed NetCo spin-off and sale is in line with the strategic plan its directors unanimously voted in favour of 18 months ago.

Further, it is pushing on with preparations to sell NetCo to KKR. The US investment firm has submitted a binding offer for NetCo, believed to be in the range of €23 billion, including around €2 billion in earn-outs in the event of a future TIM/Open Fiber networks merger. There is also a separate bid on the table for submarine networks business Sparkle. TIM noted that it will discuss the offers at the Friday board meeting and another set for 5 November.

There will be plenty to discuss, particularly if the directors comb through the finer points of the TIMValue plan.

The plan proposes the creation of TechCo, which would bring together the NetCo assets with TIM Enterprise – including Olivetti, Telsy and Noovle – and related infrastructure like datacentres; essentially, all assets TIM earmarked for possible M&A when it shared details of its planned restructure in mid-2022. With all retail assets sold off, TechCo would act as a pure wholesale provider, as well as an infrastructure builder, responsible for the country’s fibre rollout plans.

The plan also foresees making TIM Consumer attractive to potential buyers, although it is a little light on detail on that score.

“TIM Consumer will be restructured, repositioning it as a digital consumer platform, and once sustainable, it will be carved out and sold,” the document reads. You could argue that turning it into a sustainable digital business is already what TIM is trying to do. But anyway.

“Discussions with potential buyers will start immediately, with the objective of accelerating the process and reduce the debt burden as quickly as possible, but also to ensure that the restructuring process is aimed at creating the most palatable set of assets based on the desiderata of the potential buyers,” the TIMValue proponents claim.

The sale of TIM Brasil – a decision that was perhaps made more reluctantly – would be instrumental in making the consumer business appealing to investors.

“TIM’s Brazilian business, despite being a very valuable one and possibly the one that kept the company afloat in the last few years, is not core,” the TIMValue letter reads. “The sale of TIM Brasil, at the right price, will be an important tool to fund the transformation of the company and turnaround of TIM Consumer.”

It’s easy to see the logic behind this plan, at least from a financial point of view, and it will doubtless provide food for thought for those involved in the decision-making at TIM. But there’s something about it that feels like a backward step rather than a move into the future for the Italian incumbent, not least because of the final point of the plan.

“TechCo will remain a publicly-traded company and be renamed Telecom Italia.”

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