Valentina Za, Valentina Za, and Elvira Pollina

MILAN (Reuters –Telecom Italia stated on Sunday that they would begin formal negotiations with KKR for an assessment of the U.S. Fund’s potential 10.8billion euro ($11.8billion) offer to Italy’s largest telephone group. This was almost four months following the original approach.

Telecom Italia (MI.) (TIM) said that they would explore possible ties with Open Fiber, the state-backed competitor to broadband. This is part of a company’s ongoing in-house renovation led by Pietro Labriola in March.

According to TIM, discussions with KKR were held to evaluate “the attractiveness of the proposal” and to determine “the scope and length” of the confirmatory due diligence that the private equity firm requested prior to submitting a non-binding offer.

Sources have stated that KKR aims at acquiring control of debt-laden ex-monopoly phone company, delisting it, and attempting to relaunch the business by removing its network infrastructure assets.

Labriola’s appointment was sponsored TIM’s largest investor Vivendi. Vivendi considers KKR and initial offer to be too low. Vivendi has now presented its own plan to save the company. Labriola also proposes to seperate network assets and TIM’s services arms.

The company released a statement after a Sunday special board meeting, stating that “TIM’s Board confirmed the willingness to execute the plan and examine the revamp,”

“The board also confirmed the conviction that TIM has hidden value… that must be considered in any evaluation of alternatives to the business planning.”

TIM stated that Chairman Salvatore Rossi and Labriola would have formal discussions with KKR after informal contact between advisors over the past months to get more information on the KKR proposals.

In the face of fierce competition in its home market, TIM has seen its revenue decline and profit margins shrink in recent years. The shares fell to record lows last week after Labriola revealed his new revamp plan, and reported an unprecedented 2021 loss.

KKR’s current bid for 0.505 euros per share on Friday is 75% higher than the stock’s close level of Friday. This compares to a 46% premium that was initially announced.

It is not yet clear if the government of Italy will take a formal position on KKR’s proposed.

According to the U.S., the fund wants both the support of TIM as well as the government. KKR has already been involved in TIM and paid 1.8billion euros for a 37.5% share of its secondary network last year.

OPEN FIBER TABLES

Rome is now the second largest investor in TIM. This was achieved through CDP state lender CDP. Open Fiber has 60% ownership.

TIM indicated that it would keep in touch with CDP as well as all other authorities about the Open Fiber merger. It would establish a single Italian broadband champion.

TIM had hoped that a preliminary agreement would be reached with CDP regarding Open Fiber by Sunday’s board meeting. However, discussions on a tie-up which raises regulatory concerns will need to take place over time according to sources.

Labriola stated that TIM was ready to give up a large portion of its valuable fixed landline assets in an effort to revive the partnership with Open Fiber.

Sources have indicated that a merger with Open Fiber would provide TIM investors an opportunity to make 1 euro per share more than the existing set-up.

($1 = 0.9151 euros)