US private equity giant KKR has won the right to negotiate on an exclusive basis the purchase of control of TIM‘s NetCo, the new company into which the Italian tlc group’s infrastructure network will be transferred and into which Sparkle’s submarine cables will also be merged (see here the press release). This was announced yesterday evening by the Italian tlc group, after the board of directors meeting that as planned examined the final non-binding offers received last June 9 from KKR and from the consortium formed by CDP Equity and Macquarie Infrastructure Real Assets and whose analysis had begun last Tuesday, June 19 (see here a previous article by BeBeez).
TIM’s note reads, “as a result of an extensive and in-depth discussion, conducted with the assistance of leading financial advisors (Goldman Sachs, Mediobanca – Banca di Credito Finanziario and Vitale & Co) and in light of the preliminary investigation carried out by the Related Parties Committee (in turn assisted by LionTree and Equita as independent advisors), TIM’s Board of Directors has found that the offer submitted by Kohlberg Kravis Roberts & Co. was preferable in terms of executability and relative timing, as well as superior to the competing offer submitted by the consortium formed by CDP Equity and Macquarie Infrastructure and Real Assets (Europe) Limited.”
For these reasons, the BoD mandated CEO Pietro Labriola to initiate, on an exclusive basis, an improved negotiation with KKR, aimed at “obtaining the presentation in the shortest possible time, compatible with the complexity of the transaction and in any case by September 30, of a final and binding offer” and “to agree on the perimeter, methods and timing for the execution of the confirmatory due diligence activity referred to in KKR’s offer itself.”
As a reminder, rumors were already circulating last Tuesday that KKR’s offer was preferred. In fact, it was rumored that the US. private equity giant had increased its offer up to a total of 23 billion euros, after in April it had offered 19 billion euros plus 2 billion euros in earn-outs, for a total therefore of 21 billion, including the refinancing of TIM’s share of debt that will be transferred to NetCo for about 10 billion euros, which already meant a billion more than the first proposal presented at the beginning of the year (see here a previous article by BeBeez). As for the CDP Equity-Macquarie consortium, the terms of the latest offer are not known, but it was already rumored to be nferior to that of KKR, as it had been previously. Recall, in fact, that the consortium had offered 19.3 billion euros compared to about 18 billion in the first offer, again including debt, but with a higher share of cash than that offered by KKR and thus with a greater potential impact on TIM’s overall debt reduction , it was said to be almost 17 billion.
Recall, however, that it is possible that KKR could ally with CDP Equity and F2I to jointly take over TIM’s network, with CDP Equity in the meantime being able to solve the antitrust problem arising from owning 60 percent of Openfiber, the other big fiber operator in Italy, in which Macquarie owns a 40 percent stake. In fact, recall that rumors have been circulating in recent weeks about a hypothetical unbundling of Open Fiber, with the acquisition of the so-called black areas, the most valuable ones (more densely populated, in which there is a competitive market with at least two different providers of ultrabroadband network services), by the Australians of Macquarie while the so-called white and gray areas would remain with CDP, with the former being those where there is not expected to be more than one network operator within a three-year period and the latter being those where no operator is present and no one has shown interest in investing. Also in recent weeks, the possibility has emerged that F2i sgr will also enter the game, with in fact F2i’s CEO, Renato Ravanelli, who recently endorsed the hypothesis, confirming to Radiocor, “We are in dialogue with the parties involved.”
That said, there is still always to be considered the position of the French tlc giant Vivendi, TIM’s main shareholder with 23.75 percent of the capital, which, as reported in recent hours by the Financial Times, still does not seem at all convinced by KKR’s offer and has already made it clear for some time that it wants any decision on the network to be subject to an extraordinary shareholder vote, which requires a qualified majority. In fact, recall that several times over the past year and a half the French group has stressed that it had in mind a valuation for NetCo of around 31 billion, including debt, so quite a different figure than the bids even in their improved version. Last May Vivendi was said to be willing to close the deal at around 26 billion.
Recall that cashing in as much as possible from the sale of the network is crucial to reducing TIM’s debt: gross debt increased by about 3.2 billion in 2022 from 22.2 billion in 2021 to 25.37 billion last year, against a 3.1 percent increase in revenues to 15.79 billion from 15.32 billion in 2021, and a 5.3 percent increase in ebitda to 5.35 billion from the previous 5.08 billion, and with a net loss declining to 2.93 billion from a red of 8.65 billion (see here a previous article by BeBeez). Things on the debt front did not improve in the first quarter of 2023: in fact, net financial debt rose to 25.8 billion euros at the end of March, compared with an increase in revenues to 3.8 billion (up 4.3% from Q1 2022) and ebitda to 1.5 billion (up 3.8%) (see here the press release and investor presentation here).
