The fund owns a 3 percent stake in TIM. The offer at the BoD next Friday, Nov 3. Meanwhile, the Italian Government leaks that it is not changing its mind on the previous path
Merlyn Partners, the Luxembourg-based private equity fund whose adivisor is the UK-based Merlyn Advisors Ltd, founded by Alessandro Barnaba, who earlier this year had attempted to acquire Sampdoria soccer team(see here a previous article by BeBeez), which later came under the control of Aser Capital and Gestio Capital (see here a previous article by BeBeez), has entered Milan-listed tlc group TIM‘s affaire, proposing an alternative solution to the sale of its NetCo to KKR with the Italian Government as a co-investor. NetCo is the company that will hold the management and infrastructure perimeter of the fixed telecommunications network currently owned by the TIM.
On Friday, Oct. 28, in fact, Merlyn put online his proposal, christened TIM Value, which basically consists of keeping the fixed network within TIM and in return selling the subsidiaries TIMConsumer and TIM Brasil, all under the direction of a new ceo in place of Pietro Labriola, who would be replaced with former TIM manager Stefano Siragusa, who at the end of 2021 had been appointed deputy ceo when Mr. Labriola took the helm of the group, then in the role of general manager (see here a previous article by BeBeez). Mr. Siragusa had previously been the group’s Chief Revenue, Information and Media Officer, and before that, chairman of Sparkle, Inwit and Hitachi Rail STS. Siragusa had then left the TIM Group in December 2022, after the announcement in August of that year (see the press release from that time here).
Mr. Siragusa is the founder of Rari Nantes srl, a holding company owned by himself and his wife Patrizia Mantoan (who works at CDP Equity), whose division RN Capital Partners, which specializes in managing alternative assets, is directly involved in the offer received by TIM. The fund, in the lengthy letter sent to TIM’s board of directors, specifies that it currently already owns 3 percent of the group’s capital and that it is ready to rise just above the 5 percent threshold if the BoD does not consider its proposal, so that it will have the right to present the board with “a request to convene a shareholders’ meeting to be held as soon as possible” so that “during this meeting, or any other meeting if appropriate, TIMValue will ask all shareholders to remove Mr. Labriola and appoint Mr. Siragusa as new director, proposing to grant him the same powers”.
TIM confirmed that it has received “a communication from Merlyn Advisor LTD and RN Capital Partner, which was also widely circulated at the same time as it was sent to the company. TIM, once the share ownership of the proposing fund has been verified, will submit the document to the Board of Directors, which will meet on 3rd November. It is hereby reiterated that the NetCo project under review is in line with the plan unanimously approved by the Board of Directors and presented at the Capital Market Day in July last year. In this framework, the preparatory activities for the decisions on the offers received from Kohlberg Kravis Roberts & Co. L.P. (‘KKR’) continue and the Board of Directors will discuss them during the meetings scheduled for 3rd and 5th November” (see the press release here).
Indeed, recall that in mid-October KKR’s long-awaited binding offer to TIM’s board of directors had arrived for NetCo (see here a previous article by BeBeez). What was not expected, however, is the fact that KKR has distinguished between a bid for NetCo and one for Sparkle, the international wholesale telecommunications operator wholly owned by TIM, which operates fiber cables stretching more than 500 thousand kilometers, with a submarine network that transmits information between countries in Europe, the Mediterranean and the Americas. A company whose value is said to be around 1 billion euros. So overall little compared to the much higher numbers involved in the whole deal. In fact, KKR is said to have tweaked its offer upward, taking it from around 23 billion last time (see here a previous article by BeBeez) to a figure close to 24 billion, including the earn-out. Specifically, there is talk of 10 billion in equity, 10 billion in debt and the rest earn-out. KKR’s new offer expires next Nov. 8, while KKR has made a new non-binding offer for Sparkle, expecting to proceed with the transmission of a binding offer within 4 to 8 weeks, upon completion of ongoing due diligence activities, requesting an exclusivity period until next Dec. 20.
We also recall that at the end of August the Italian Council of Ministers, at the proposal of President Giorgia Meloni and Minister of Economy and Finance (MEF) Giancarlo Giorgetti, gave the green light to the entry of the MEF into the capital of NetCo, as part of the operation organized by KKR, putting up to 2.2 billion euros on the plate, for a stake in NetCo between 15 and 20 percent, resources that will be drawn from the availability of the so-called Patrimonio Destinato, created by Decree Law No. 34 of 2020 and amounting today to 2.525 billion (see here a previous article by BeBeez). At the end of the transaction KKR should hold about 65 percent of NetCo’s capital, the MEF precisely 15-20 percent, while the remaining share could be distributed between Cassa Depositi e Prestiti (CDP, Italy’s National Promotinal Institution) and the Government-sponsored infrastructure investment firm F2i sgr. In this regard, Mr. Giorgetti had said, “Possible involvement of CDP, taking into account Antitrust constraints,” referring to the fact that CDP is already a majority shareholder in Italy’s FTTH (Fiber To The Home) network operator Open Fiber, flanked by Macquarie (see here a previous article by BeBeez).
And indeed, also on Friday, October 28, the Italian Government made it known that it does not intend to change its mind. “With reference to the self-styled proposal that recently emerged on the future of TIM, the Government points out that it has made other decisions that contemplate another plan, made manifest to the TIM company and the market with transparency and in the correct manner. Any other initiative is foreign to the government’s intentions,” sources close to the executive branch told the Italian press agencyANSA.
That said, Merlyn fund does not intend to let go easily, partly because he is counting on cashing in on the support of that part of the shareholder base that believes that the price offered by KKR for NetCo is not adequate. First and foremost is French media giant Vivendi, which owns a 23.75 percent stake in the group and is the largest shareholder. Vivendi has long made it known that it considers a much higher price, around 31 billion, to be appropriate (see here a previous article by BeBeez). Just to try to find a solution, Treasury Minister Giancarlo Giorgetti and the Mrs. Meloni government’s chief of staff, Gaetano Caputi, had met last Oct. 5 with Vivendi chairman Yannick Bollorè and ceo Arnaud de Puyfontaine, who, according to La Repubblica reports, proposed to take a different path than NetCo’s sale in order to financially lift TIM, weighed down by debt. Vivendi’s idea would in fact go through a radical change in management without divestments or capital increases. But the Italian Government had remained on its positions.
Merlyn & Partners was founded as a private equity operator with a focus on special situations, so it is not an activist fund per se, but it proposes itself as such with respect to listed companies, which it believes are not well managed and need to be enhanced. As it believes TIM is, and for that very reason it proposes a completely different plan to the one imagined by the current ceo Mr. Labriola, who according to Merlyn’s plans should then be removed and replaced by Mr. Siragusa. All in a deal that could still involve CDP, KKR and Macquarie.
In detail, Merlyn’s proposal includes:
Restructuring, spin-off and sale of TIMConsumer. All current retail assets would be restructured, repositioned and sold. Discussions with potential buyers would begin immediately, with the goal of speeding up the process and reducing the debt burden as quickly as possible
Sale of TIM Brasil. The stake in TIM Brasil, although of great value, is not strategic. The sale of TIM Brasil, at the right price, would be an important tool for financing the company’s transformation and turnaround of TIMConsumer.
Retention of NetCo and the entire network in TIM, including Sparkle and FiberCop.
Creation of TechCo, the new TIM. TechCo would be a company that would integrate NetCo’s current assets and EnterpriseCo’s expertise, know-how, customer relationships, vendor ecosystems, and investee companies such as Olivetti, Telsy, Noovle and related infrastructure such as data centers and PSN contracts. TechCo would focus only on the business segment and offering unregulated services, thus avoiding, competing in any consumer segment.
Creation of the national network within TechCo and with CDP as the major shareholder and with KKR and Macquarie also as shareholders. This would take place, on the one hand, with CDP and Macquarie contributing their respective shares in OpenFiber to TIM (which previously, to avoid antitrust issues a priori, would have to divest so-called black areas, i.e., the most densely populated areas, for which there is a competitive market with at least two different providers of ultra-broadband network services) and, on the other hand, with KKR contributing its share in Fibercop to TIM. TechCo would remain publicly traded and be renamed Telecom Italia.
In Merlyn’s intentions, this proposal, “aligns interests toward creating value for TechCo, involving all shareholders, especially Vivendi and CDP,” and offers “the opportunity for various existing and future stakeholders, including KKR and Macquarie and major Italian banks, to participate in the establishment of the national champion”.
