The mega-deal on Milan-listed tlc group TIM is being enriched with a new player. The Abu Dhabi Investment Authority (ADIA), Abu Dhabi’s sovereign fund with $853 billion under management, according to SWFI, has in fact allied with US infrastructure investment giant KKR in co-investing in the Italian group’s NetCo, i.e., the company that will hold the management and infrastructure perimeter of the fixed telecommunications network currently owned by TIM. This can be read in the statement published yesterday evening by the group led by ceo Pietro Labriola, which announced the signing of the transaction agreement with Optics BidCo, a company controlled by KKR that precisely now turns out to be also participated in by Azure Vista, a vehicle wholly owned by ADIA (see here the press release).
Recall that back in late November 2020 rumors had already spread about negotiations between KKR and ADIA for the sovereign fund to join KKR in its investment in 37.5 percent of FiberCop, the newco in which TIM’s secondary network (from the street cabinet to customers’ homes) and the fiber network developed by FlashFiber, the joint venture in which TIM has an 80 percent stake and Fastweb a 20 percent stake (see a previous article by BeBeez). That deal was then never heard from again, but FiberCop is now among the assets that will be channeled into NetCo.
The signing of the agreement between TIM and Optics BidCo comes on the heels of the announcement of the go-ahead for KKR’s binding offer for NetCo (see a previous article by BeBeez) The binding offer, as a reminder, values NetCo (excluding TIM’s subsidiary Sparkle) at an enterprise value of 18.8 billion euros, without taking into account any increases in value resulting from the potential transfer of part of the debt to NetCo and from earn-outs linked to the occurrence of certain conditions that could increase the value up to 22 billion euros. In any case, a total well below the 24 billion euros that the market expected based on rumors circulated in recent weeks (see a previous article by BeBeez).
The note released yesterday specifies that the transaction agreement regarding Netco governs, as already anticipated in the note of the day before:
- the contribution by TIM of a business unit, consisting of activities related to the primary network, the wholesale business and the entire stake in the subsidiary Telenergia, to FiberCop, a company that already manages activities related to the secondary fiber and copper network;
- the simultaneous purchase by Optics Bidco of the entire stake held by TIM in FiberCop itself, upon completion of the aforementioned contribution (FiberCop post Netco contribution);
- the signing on the closing date of the transaction of a master services agreement that will regulate the terms and conditions of the services to be rendered by NetCo to TIM and by TIM to NetCo following the completion of the transaction
Specifically, the offer assumes that the closing will take place by the Summer of 2024 and stipulates that the price of the business unit being contributed to FiberCop will be subject to adjustment (usual for this type of transaction) at closing in relation to certain predefined parameters and targets, such as, inter alia, the cash and debt transferred, the level of working capital, the cost recorded in the last 12 months of the transferred employees, and compliance with certain investment and fiber network deployment targets.
Yesterday’s note then concludes with a stylistic remark about the controversy raised by the lower-than-expected price and the fact that the transaction was not submitted to a vote of the shareholders’ meeting, considerations that weighed on the TIM stock price on the Milan Stock Exchange, which in fact closed yesterday at 0.2510 euros, down 3.35 percent. It reads, “In relation to the information and statements disseminated in recent days and their correctness, the company does not deem it appropriate to comment on the press organs, reserving the right to do so in the appropriate venues, also in light of their effects on the trend of stock market prices.”
Recall that Merlyn Partners, the Luxembourg-based private equity fund whose advisor is the UK-based Merlyn Advisors Ltd, in tandem with TIM deputy ceo Stefano Siragusa through its RN Capital, which together own a stake of just under 3 percent in the tlc group, were calling for the shareholders’ meeting to decide which solution to choose for TIM’s future between KKR’s proposal and their alternative one, put on the plate a week ago (see a previous article by BeBeez International). In a statement released last Sunday evening, the fund announced “its willingness to reserve the right to proceed with any possible action that would lead the BoD to convene a shareholders’ meeting as soon as possible where they can decide whether the plan approved today independently by the BoD is what the shareholders want for their company or whether they prefer a different and, in our opinion, better future” (see the press release here). In the background then remains the position of French media giant Vivendi, the group’s largest shareholder with 23.75 percent of the capital, which values NetCo at around 31 billion euros and which in turn would propose an alternative solution to the sale of NetCo (see a previous article by BeBeez).
