Giuseppe Fonte & Elvira pollina

MILAN (Reuters), KKR expresses reservations over a plan by Telecom Italia (BIT:? (TIM) will merge its network which was partly owned by the U.S. Fund with Open Fiber’s, according to two people familiar with the matter.

KKR paid 1.8 billion Euros ($1.9 Billion) in 2020 for a 37.5% interest in TIM’s last mile grid unit FiberCop. KKR also has the ability to veto any deal that isn’t value-accretive.

FiberCop holds cables running from streets cabinets to the homes of users. It would be included with any Open Fiber network entity.

TIM began formal negotiations last month with CDP, a state investor. However, the April 30 deadline was missed without a preliminary agreement. CDP controls 10% of TIM as well as 60% of Open Fiber.

Last week, Pietro Labriola, CEO of TIM said that he believed an agreement was possible.

Complicating matters, sources stated that KKR requested guarantees regarding the economic returns from any one network deal prior to giving support.

TIM and KKR declined to comment.

After rejecting KKR’s takeover offer, TIM continues to work on plans for a split of its domestic network and its services businesses.

The plan would allow TIM to relinquish control and become the primary shareholder in all network combinations between TIM or Open Fiber.

Sources indicated that KKR was concerned by the possible impact of EU competition authorities imposing antitrust remedies in order to end a tie-up. This could reduce the expected returns.

Rome considers favourable any deal that would allow the country to improve its infrastructure, which is considered strategic. This will avoid costly duplicate investments.

Sources claimed that KKR did not believe the project fit with an EU funded scheme to increase fibre optic rollout throughout Italy.

TIM, Open Fiber and TIM compete for government tenders in order to receive 3.8 Billion Euros ($4 Billion) from the EU to recover funds. These funds will be used to provide 1 Gbit per second Internet connectivity in Italy by 2026.

KKR also argued CDP must inject money into any network entity to maintain control. One source said that CDP did not comment on this. CDP did not respond to requests for comment.

A sign that KKR may pose problems, the U.S. Fund has forced TIM into reviewing the terms and conditions of a separate agreement. The agreement would have Open Fiber access to TIM’s infrastructure and allow the rival to roll out fibre optic rollout plans to remote areas. Another source stated that this was done to force TIM.($1 = 0.9514 euros)