MILAN -Private equity firm KKR is eyeing a further investment in Telecom Italia’s fixed-line network as Italy’s main telecoms group weighs options for its assets in an effort to appease top investor Vivendi, three sources close to the matter said.
Vivendi is piling pressure on Telecom Italia (TIM) Chief Executive Luigi Gubitosi after TIM issued two profit warnings in three months, cutting its free cash flow outlook and stoking concerns about its 22 billion euros ($25.34 billion) in net debt.
KKR last year paid 1.8 billion euros for a 37.5% stake in FiberCop, the unit holding TIM’s last-mile network connecting street cabinets to people’s homes.
The sources said the investor would now like to boost its exposure to TIM’s fixed-line assets as Italy prepares to spend billions of euros of European Union recovery funds to boost digital connectivity.
With a plan to merge TIM’s key fixed-line assets – which run from switching centres to households, including the FiberCop network – with those of state-backed rival Open Fiber on hold, Gubitosi is reviewing other options to raise money from TIM’s assets while the company wrestles with ferocious competition on its home turf.
KKR is eager to play a role in the asset revamp, increasing its stake in FiberCop and pushing for the merger with Open Fiber, the sources said, with one adding that KKR could even invest directly in TIM, provided the government agreed.
KKR declined to comment. A spokesperson for TIM said the company was not currently considering cutting its stake in FiberCop.
In recent months, Gubitosi has been trying to persuade Vivendi that relinquishing control of a merged FiberCop-Open Fiber entity was the only way to revive the unified-network plan and overcome strong political and regulatory resistance to it, sources have told Reuters.
Vivendi has so far opposed TIM ceding control. A spokesperson for Vivendi said it had not been informed of KKR’s interest in increasing its investment.
TIM’s fixed-line assets are deemed strategic by the government and state investor CDP has taken a 9.8% stake in the company to oversee them.
Another one of the sources said the government of Prime Minister Mario Draghi was informed of developments regarding TIM and KKR but was keeping at arm’s length.
Gubitosi, whose plan centres around the creation of a new company housing TIM’s various assets, has pledged to report back to the board about progress on the scheme after speaking to investors.
($1 = 0.8683 euros)
(Reporting by Valentina Za, Elvira Pollina in Milan, Giuseppe Fonte in Rome and Pamela Barbaglia in London, additional reporting by Agnieszka Flak; editing by Gavin Jones, Kirsten Donovan)
