TIM‘s Board of Directors will examine in its next meetings scheduled for June 19 and 22 the two non-binding bids submitted last June 9 by the consortium CDP Equity and Macquarie Infrastructure and Real Assets (Europe) and by KKR, respectively, for TIM’s NetCo, the new company into which the Milan-listed tlc group’s infrastructure network will be transferred and into which Sparkle‘s submarine cables will also be merged (see here the press release).
Recall that in early May TIM had issued a note reporting that the BoD had thoroughly analyzed the non-binding offers received in April for Netco from the two counterparties and that it had not yet deemed them adequate. That said, it had given the parties time to improve their offers and submit them precisely by June 9 (see here a previous article by BeBeez).
KKR is said to have further increased its offer this time up to a total of 23 billion euros, after it had offered 19 billion euros plus 2 billion euros in earn-outs in April, thus totaling 21 billions, including the refinancing of TIM’s share of debt that will be transferred to NetCo for about 10 billion euros, which already meant one billion more than the first proposal submitted at the beginning of the year (see here a previous article by BeBeez).
As for the CDP Equity-Macquarie consortium, the terms of the new offer are not known, but it is said to be lower than that of KKR, as it had been previously. Recall, in fact, that the consortium had offered 19.3 billion euros compared to the approximately 18 billion in the first offer, again including debt, but with a higher share of cash than that offered by KKR and therefore with a greater potential impact on TIM’s overall debt reduction , rumored to be almost 17 billion.
It will now be to be seen whether these figures will get the green light from the shareholders and in particular from French tlc group Vivendi, TIM’s largest shareholder with 23.75 percent, which has made it clear several times over the past year and a half that it had in mind a valuation for NetCo of around 31 billion, including debt, thus quite a different figure than the offers even in their improved version. Last May Vivendi was said to be willing to close the deal at around 26 billion.
Yesterday Il Sole 24 Ore reported that sources close to Vivendi, based on the values of the bids that emerged from press rumors, rejected the bids of KKR and CDP-Macquarie, calling them “insubstantial” and said that at this point the “bidding season” can be closed definitively”. More in detail, Vivendi expects the TIM board, which “has already rejected substantially equal offers,” to confirm “this line.” Not only that. According to the sources, “the rhetoric that TIM must sell the network to survive must be strongly refuted because there are other plans that achieve the same goal with less economic effort” and that “it is necessary to open a new chapter with an industrial and not purely financial strategic vision.”
That said, no Vivendi representative has sat on the TIM board since mid-January, after the ceo of the French tlc giant, Arnaud De Puyfontaine, resigned from the board in controversy with current chairman Salvatore Rossi. A replacement has not yet been found since then, but now the issue is urgent, just ahead of the board meetings that will review the bids. So TIM’s nomination committee also met yesterday, on Sunday to review the shortlist of possible names submitted by the head hunter (see hereVerità &Affari). In mid-May Vivendi in a letter to TIM’s Board of Directors had indicated former Leonardo’s chairman Luciano Carta (see here Reuters)). Whoever will be nominated will be TIM’s 15th director and his vote will therefore be crucial for the vote on the bids. The co-option is scheduled for Wednesday, June 14.
Recall that cashing in as much as possible from the sale of the network is crucial to TIM’s debt reduction: in 2022, gross debt increased by about 3.2 billion 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 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 here the analysts’ presentation).
Meanwhile, CDP’s ceo Dario Scannapieco, speaking last Saturday, June 10, at the Foglio‘s Innovation Party, said that on the negotiation for TIM’s network company “the timeframe will probably be longer than one imagines, we will see what happens but I would not dramatize. It will take time and the scenario is evolving”. And he added, “Italy is third to last in Europe in terms of fiber use by all of us, we have two companies that have synergies that can be exploited because it does not make sense to create two networks to deliver the service. The choice to separate the network and develop competition on services as it happens on electricity or on other fronts seems to me to be a sustainable choice, which is the one that TIM’s management has pursued” (see here Il Foglio).
Mr. Scannapieco is evidently referring to the other network-owning company OpenFiber, in which CDP and Macquarie are now 60 percent and 40 percent shareholders, respectively. Recall that it has long been the goal of the government and CDP to merge the networks of TIM and Openfiber. And with this in mind, in order to avoid antitrust problems, CDP and Macquarie are said to be working in recent weeks on unbundling Open Fiber itself (see here Il Sole 24 Ore), with the acquisition of the so-called black areas, those of greater value (more densely populated, in which there is a competitive market with at least two different providers of ultrabroadband network services) by the Australians, 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 (see here about the definition of black, grey and white areas). If this is the case, then it is possible that at that point CDP and KKR could ally to take over TIM’s network together.
