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Jul 23, 2023

Italy set to take over Telecom Italia's submarine cable unit

[1/2]The Tim logo is seen at its headquarters in Rome, Italy November 22, 2021. REUTERS/Yara Nardi/File Photo Acquire Licensing Rights MILAN, Aug 29 (Reuters) - Italy's Treasury can take full

[1/2]The Tim logo is seen at its headquarters in Rome, Italy November 22, 2021. REUTERS/Yara Nardi/File Photo Acquire Licensing Rights

MILAN, Aug 29 (Reuters) - Italy's Treasury can take full ownership of Telecom Italia's (TIM) (TLIT.MI) submarine cable unit Sparkle as part of an agreement with U.S. fund KKR (KKR.N) to jointly bid for the group's fixed grid, a draft government decree showed on Tuesday.

The Italian government on Monday approved two decrees providing for the Treasury to take a 15-20% stake in NetCo, a venture comprising both TIM's domestic fixed-access network and Sparkle.

The decrees, seen by Reuters, showed the Treasury would also be able to acquire Sparkle "at a later stage".

An international wholesale telecoms operator, Sparkle manages fibre cables that stretch over 600,000 kilometres. It was valued at up to 1.2 billion euros in KKR's preliminary bid for NetCo, sources have said.

The sale of the network is a key plank in TIM CEO Pietro Labriola's attempts to reshape the former telecoms monopoly that has long been hobbled by a huge debt burden.

The government move considerably increases the chances of the deal being finalised, "given the clear and strong political support", broker Equita wrote in a research note.

KKR has offered around 23 billion euros ($24.9 billion) for NetCo once debt and a number of variable items are included, while leaving the door open for the government to join its bid and maintain oversight of the asset.

The decrees authorise the Treasury to submit a binding offer together with KKR and other Italian investors for NetCo, resulting in a minority stake for the ministry worth a maximum 2.2 billion euros.

A potential hurdle remains the stance of TIM's top investor Vivendi, which has so far demanded a higher valuation to back any deal and questioned the sustainability of TIM's remaining service business.

Top representatives from the French media company, which holds a 24% stake in TIM, are waiting to be summoned to discuss the deal with Prime Minister Giorgia Meloni's senior aides although no meeting has been scheduled so far, sources close to the matter said.

TIM's network is Italy's main telecommunications infrastructure and government authorities have for years been looking to ensure investments are carried out to upgrade it to fast fibre, while also protecting jobs.

The decrees envisage governance rights for the Treasury in NetCo allowing it to oversee decisions of strategic importance and national security, "including in the event of a change in the shareholding structure".

($1 = 0.9252 euros)

Editing by Jason Neely and Keith Weir

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