Much ado (about nothing) on the Tim Network front? In the last 72 hours, the NetCo affair has come under the spotlight. The a twist arrived last Friday when the markets were closed, with an alternative proposal to the binding one from the US fund KKR of last October 15th. An “alternative plan” set up by the founder of Merlyn Advisors Alessandro Barnaba, formerly of JP Morgan, and by Stefano Siragusa, former deputy general manager of Tim who left the company in December 2022. A proposal called “TimValue” (complete with website) which was rejected by the government and which raised many doubts about its feasibility among analysts.
Meanwhile in Piazza Affari, Telecom Italia is currently on the rise after a lackluster start: the stock rises by almost 1% to 0.2435 euros.
TimValue in the field with an alternative plan for a “different future”
A new proposal for the Tim Network began circulating on Friday evening. A 37-page letter sent to the attention of Tim’s board of directors with the eloquent subject “a different future for Tim” which is presented as “an alternative plan in the interests of Tim’s shareholders and Italy“. It must be clarified that Merlyn Partners, i.e. the Luxembourg investment fund managed by Merlyn Advisors Ltd. represents (directly or by proxy) a group of Tim shareholders, who “hold an amount of ordinary shares in the company lower than the 3% threshold, relevant to the legal reporting obligation”.
The key points of the letter
“Instead of selling the network, Tim must divest its regulated and consumer activities to transform itself into an infrastructured technology company capable of offering value-added digital solutions to its business customers and public administration thanks to its network“. This is the starting point of the alternative plan of the consortium, according to which “this alternative plan favors the creation of the national network under the strategic guidance of CDP, to defend the interests of Italians”. A plan that “does not require government funds” and “restores correct governance in the board of directors, involving and welcoming all stakeholders, respecting TIM’s history, enhancing and safeguarding the workforce and related industries“. Among the key points of the letter is the idea that it can create value for all shareholders and, once implemented, the share price could return to 1 euro and the payment of dividends to shareholders could be reintroduced”.
In particular, the TimValue’s alternative plan is made up of six key points:
keep NetCo and the entire network in Tim; Create TechCo; Create the single CDP-led network in TechCo without any investment request from the country; Restructure, spin off and sell TIMConsumer; Sell Tim Brasil; Leave TechCo listed on the stock exchange and then rename it Telecom Italia.
The criticisms of Labriola
They then point the finger at the CEO. by Tim, Pietro Labriola. “We do not agree – they write – with the plan proposed by Doctor Pietro Labriola. The current plan to spin off the network by creating the Network Company, NetCo, separate from the rest of Tim’s business, ServiceCo, and then selling it, is, in our opinion, industrially wrong, It’s extremely vague and destabilizing for Tim’s future.” It adds: “TIMValue believes that Labriola is not implementing a value creation plan, as clearly reflected in TIM’s share price, but is extracting savings solely from Tim’s workforce through a series of pay cuts and layoffs that are destroying the strategic assets of TIM: the know-how and passion of TIM employees as well as the dedication of suppliers”.
Tim’s note
Confirmation of the sending of the new proposal arrived on Saturday morning from Tim who, at the request of Consob, announced that “having received a communication from Merlyn Advisor LTD and RN Capital Partner last Friday, which was also widely disseminated at the same time as it was sent to the company“.
The company indicated that “once the shareholding of the proposing fund has been verified, it will submit the document to the board of directors, which will meet on November 3”. An occasion on which it was reiterated that “the NetCo project being examined is in line with the plan approved unanimously by the board of directors and presented on the Capital Market Day in July last year”. With a final clarification: “In this context, preparatory activities continue for decisions regarding the offers received from the KKR fund during the already scheduled meetings of 3 and 5 November“.
Equitable: alternative hypotheses lacking concrete elements, financially unviable
“In addition to not having the support of the government and totally lacking concrete elements that give any guarantee on the feasibility of the proposal, In our opinion, the ‘plan’ also raises strong doubts regarding financial sustainability“, comment Equita analysts. The reasons? According to experts “at today’s market values, the sale of Tim Brazil does not improve the group’s leverage, which would actually rise from 3.9 times to 4.3 times D/EBITDA aL and would significantly reduce operating cash flow. The sale of Tim Brazil would therefore have a positive financial impact only if conducted with a very high premium compared to current market values, as reiterated by the company in the past”. Furthermore, Equita explains, “the sale of ConsumerCo can hardly take place at interesting values before having completed the turnaround”.
Government rejection
“We believe that this alternative plan is coherent and fully aligned with the needs of the country and the requests of the Government, as well as fully compliant with the vision of the Government summarized in the MoU signed on 10 August 2023 and in the subsequent decrees signed on 29 August 2023”, we read in the TimValue letter.
And the Government’s response, with its rejection, did not take long to arrive. From the Mef they reply that “with regard to the so-called proposal that recently emerged on the future of Tim” for the government there are no alternative plans on NetCo to the one pursued and communicated to the company and the market.