TIM heralds a new start as NetCo sale closes

The operator has been sweating over the sale of its network assets for years, but ultimately passing NetCo over to investment group KKR on Monday appears to have gone without a hitch.

"The completion of the transaction with KKR and the Italian Ministry of Finance is the result of two and a half years of intense work, during which we have improved the management of TIM and identified industrial and financial solutions that will enable us to meet future challenges," said TIM chief executive Pietro Labriola, in a statement. "We reached a milestone that is also a new starting point: we have done so by meeting all targets within the announced deadlines."

Labriola is clearly relieved to have got to this point. The networks sale journey, which began with a board mandate to the then new CEO in early 2022, has been beset by difficulty, from the selection of the purchaser to the objections of vocal shareholders. Closing the deal is, therefore, cause for celebration for the Italian operator. But all connected to it will be keenly aware that the job is far from finished.

The new network-less TIM is significantly smaller as a result of the loss of NetCo. The telco confirmed that the deal means it sheds €14.2 billion in debt, which will actually translate to an impact of €13.8 billion, due to €400 million worth of restructuring costs. And its employee base more than halves, falling to 17,281 – or 16,135 full-time equivalents – from 37,065.

"The transaction provides TIM with the opportunity to adopt a new business model that will allow the Group to compete more effectively in the consumer and enterprise markets in Italy, thanks to a stronger focus on the industrial and commercial aspects of its business and thanks to a solid financial structure," TIM said.

That's the plan, at least. But the telco will not have long to persuade shareholders and industry watchers that offloading the networks was the right course of action. Labriola and his new ServCo will continue to come under very close scrutiny.

As planned, the deal came about through the transfer of TIM's network assets to its FiberCop arm, which was subsequently acquired by Optics BidCo, a subsidiary of KKR, which includes the Italian MEF, CPP Investments, the Abu Dhabi Investment Authority's Azure Vista subsidiary and Italian infrastructure fund F2i.

It still leaves TIM with its Sparkle subsea cable business though, which was not part of the NetCo deal. As Milano Finanza pointed out this week, the telco is still waiting for an offer, which is likely to come from the Italian treasury in partnership with Spanish private equity firm Asterion. The operator is also working on the sale of another 3% of towers business Inwit.

TIM rejected a bid of undisclosed size from the MEF for Sparkle back in February and requested a better offer. To date, one has not been forthcoming, but with the Italian government viewing Sparkle as a highly strategic asset, it is only a matter of time.

On the subject of valuation, TIM confirmed that the NetCo sale closed at the agreed €22 billion – that's €18.8 billion plus possible earn-outs – level. It achieved that price point, which is still a sore point for disgruntled shareholder Vivendi, after much back-and-forth between KKR and state lender Cassa Depositi e Prestiti (CDP) last year. Doubtless it is hoping for a similar result from the Sparkle sale, although there are no rival bidders this time around.

Whatever the outcome of that process, there is no scope for TIM to rest on its laurels in a post-networks world. It needs to prove that it made the right choice and that will be no easy task in a competitive market for telecoms services.

Labriola described his company as "the first European mover," in Monday's closing announcement. That implies he believes others will follow in its footsteps. They may or may not...but they will certainly be watching with interest.