Italy Set to Take Over Telecom Italia's Submarine Cable Unit

Italy Treasury aims to fully own Telecom Italia's Sparkle unit as part of a joint bid with U.S. fund KKR for the group's fixed grid.By Elvira Pollina and Giuseppe Fonte, Reuters
August 29, 2023

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.

VIVENDI AWAITS CALL

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.

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