The TIM Board of Directors examined thebinding offer presented last October 16th by the US fund KKR (Kohlberg Kravis Roberts & Co.) relating to the purchase by the subsidiary Optics BidCo of the assets of NetCo, which manages TIM’s fixed network, including FiberCop, as well as the non-binding offer on the entire stake held by TIM in Sparkle.
The American Fund has put 20 billion on the table which could become 22 with the merger with Open Fiber. TIM, however, rejected the offer on Sparkle “deemed unsatisfactory”. They expressed their opinion in favor of the sale of NetCo to the KKR fund 11 members of Tim’s Board of Directors out of 14 present at the meeting.
THE NETCO OPERATION
This offer, we read in a note, will allow the group a debt reduction of approximately 14 billion euros. The completion of the transaction is expected by the summer of 2024.
Tim’s Board of Directors had decided last June to start exclusive negotiations with KKR, which in turn had started dialogue with the Ministry of Economy to guarantee an Italian presence in NetCo.
Going into more detail about the operation, following approval by the board, we will proceed with the signing of a transaction agreement what discipline:
The contribution by TIM of a business unit – consisting of activities relating to the primary network, wholesale activity and the entire shareholding in the subsidiary Telenergia – in FiberCop, a company that already manages the activities relating to the secondary fiber network and copper; The simultaneous purchase by Optics Bidco (as mentioned, a vehicle controlled by KKR) of the entire shareholding held by TIM in FiberCop itself, following the aforementioned contribution (FiberCop post-contribution “Netco”). Furthermore, the transaction agreement provides for the signing on the closing date of the operation of a master services agreement which will regulate the terms and conditions of the services that will be provided by NetCo to TIM and by TIM to NetCo following the completion of the operation.
CLOSING ENTRO ESTATE 2024
The offer, as mentioned, assumes that the closing will take place by summer 2024 and provides that the price of the business unit being transferred to FiberCop is subject to adjustment 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 installation objectives of the fiber optic network.
Earn-outs, i.e. contractual clauses which aim to reduce the risk deriving from a company from the purchase of another, are linked to the “completion, during the 30 months following the closing date, of some potential consolidation operations involving Netco and the possible introduction of regulatory changes capable of generating benefits in favor of Netco”.
Overall they could lead to payment to TIM “a maximum amount of 2.5 billion euros”. Furthermore, they could be added up to a maximum of 400 million con “the introduction and entry into force of sector incentives by 31 December 2025”.
SPARKLE OFFER UNSATISFACTORY, MERLYN PLAN NOT ONLINE
As for the non-binding offer on Sparkle, which manages the international network and the international infrastructure system, the Board of Directors, having deemed it “unsatisfactory”, gave the CEO, Pietro Labriola, a mandate to verify the possibility of receiving a binding offer at a higher value once the due diligence has been completed, the deadline for which has been extended until December 5th.
The Board of Directors also took note of the communication sent by Merlyn Partners and RN Capital Partners, considering it not in line with the company’s delayering plan, as presented to investors on the aforementioned Capital Market Day. In a press release, the fund commented on the choice of the Board of Directors not to pass a general meeting come “disrespectful and wrong”, underlining how they preferred the possibility of giving members a voice “a hasty and opaque decision”.
LIVE ON A WAR FOOT
In an official press note, Vivendi, TIM’s largest shareholderwhich has always maintained that the offers for the TIM network had been too low, says it deeply regrets that the TIM Board of Directors accepted KKR’s offer to purchase the TIM network “without first informing and requesting a vote from its shareholders” thus contravening the applicable governance rules.
“Vivendi’s motivated requests, expressed through multiple communications to the Board of Directors, the Board of Auditors and the Market Regulatory Authority (Consob), aimed at protecting the generality of shareholders and preventing such a prejudicial situation, were completely ignored. “
Five “pro veritate” opinions, the note continues, confirmed that the sale of the entire Telecom Italia infrastructure network entailed “a clear change in TIM’s corporate purpose” which would have been necessary “a prior modification of the company’s statute, a decision under the exclusive competence of the extraordinary meeting”.
Vivendi, the note concludes, “will use every legal means at its disposal” to contest this decision e “protect its rights and those of all shareholders.”
LABRIOLA’S WORDS
Satisfaction with the operation was expressed by the CEO of TIM, Pietro Labriola, according to whom, after “two years of work with his head down” we have arrived at one “historic decision”or “kick off the birth of two companies with new development prospects”.
Both will be the point of reference for the digital transformation of our country because, thanks to this operation, they will be able to accelerate technological development in the telecommunications sector. It is not the conclusion of our journey but a new beginning. With this operation, in fact, we are giving life to the network infrastructure and at the same time allowing the new TIM to focus on the technological innovation needed to govern the complex digital services market and play a leading role.
Labriola also wanted to underline the important role of the institutions and authorities deemed competent “the best guarantee for the execution of this plan”