Valentina Za, Valentina Za, and Elvira Pollina

MILAN (Reuters). Telecom Italia (MI): (TIM) will make a decision about a proposal for a merger with U.S.-based private equity firm KKR worth 10.8 billion euros ($12.2 million) by the middle next month.

In November last year, the U.S. privat equity fund presented a non-binding proposal to buy out the old phone monopoly. The bid process involved a 4-week due diligence and seeking the support of both the government and the company.

KKR is now forced to sit tight as Telecom Italia revamps its management. After a string profit warnings, Telecom Italia has fired its fourth chief executive.

Pietro Labriola has taken over as boss and is now working to develop a plan for investors. This will replace the KKR deal. It was supported by Telecom Italia’s top investors Vivendi, OTC: (and state lender CDP).

According to a source, a special committee in TIM will likely give its verdict by mid-March on the KKR strategy. This is after investors and the markets have digested Labriola’s plan.

BREAKING UP

KKR is already a key player in TIM. Last year, KKR spent 1.8 billion euro to purchase a 37.5% interest in FiberCop, the network’s secondary network.

Labriola proposes that TIM’s domestic operations would be divided between an infrastructure entity, and a service arm in order to unlock value.

This could allow a merger between TIM’s fixed access network and Open Fiber. A deal that CDP supports and could increase broadband service for Italian homes and businesses, such a move would be a good one. Open Fiber is owned by 60% of the state lender, while TIM holds 10%.

KKR wants Telecom Italia, on the other hand, to provide a clearly defined response before it embarks upon its own restructuring.

“The company has to take the responsibility of saying ‘No” to 0.505 Euros per share. KKR is expecting a response to its proposal,” stated another source familiar with the matter.

TIM shares fell below 0.40 Euros on Tuesday. But, Vivendi, a major shareholder claims that the price is too high because it will result in a loss.

Italian unions worry also about the effect of a breakdown on thousands of workers, and they plan to strike Wednesday.

($1 = 0.8828 euros)