Italy in Talks to Buy Stake in Telecom Italia Network

Daniele Lepido and Alberto Brambilla, Bloomberg News

A logo sits on a fixed-line public telephone booth, operated by Telecom Italia SpA, in Rome, Italy, on Monday Sept. 25, 2017. Telecom Italia is considering another management shuffle that may see an Italian returning to a senior role at the country’s biggest phone carrier in a bid to head off punitive action by regulators in the country, people familiar with the matter said. , Bloomberg

(Bloomberg) -- Italian state lender Cassa Depositi e Prestiti is in preliminary talks to buy a stake in some of Telecom Italia SpA’s fixed-line assets, people familiar with the matter said.

CDP would join Swisscom AG’s Fastweb SpA and private equity firm KKR & Co. to become an investor in Telecom Italia’s secondary grid, covering the last mile of cables from street cabinets to premises, said the people, who asked not to be named because the discussions aren’t public.

The potential purchase could accelerate a partial spinoff of the carrier’s network while bolstering what Italy’s government sees as a key strategic asset.

Telecom Italia’s management wants eventually to merge the fixed-line network with rival Open Fiber SpA to create a single national operator, a project that Prime Minister Giuseppe Conte’s administration has been pushing for.

However, Open Fiber shareholder Enel SpA is resisting the idea of a tie-up with the company’s bigger rival. In May, Open Fiber stepped up its challenge to Telecom Italia’s shrinking fixed-line business by asking its own shareholders to help fund a faster rollout of fiber broadband across the country.

Enel’s stance could pose a problem for Telecom Italia as CDP has made clear it will only take a stake in Telecom Italia’s secondary network if Enel agrees to sell out of Open Fiber, the people said.

Representatives for Telecom Italia, CDP and KKR declined to comment.

Telecom Italia shares were up 0.6% at 9:02 a.m. in Milan after declining in the previous three sessions.

What Bloomberg Intelligence Says

Telecom Italia’s sale of a stake in its domestic last-mile broadband network to KKR will likely take place, we believe, as the return on investment is appealing even in the face of competing fiber build-out by Open Fiber. The new structure could serve as preparatory step to a potential merger with Open Fiber but isn’t sufficient to facilitate a deal.

- Erhan Gurses, analyst

Click here for the research.

KKR has set an enterprise value for Telecom Italia’s secondary network at about 7.5 billion euros ($8.45 billion) and is planning to buy a stake of about 40% in the asset. A binding offer is expected as soon as this month, one of the people said.

CDP already owns a stake of about 10% in Telecom Italia, behind French media conglomerate Vivendi SA, which holds 24%.

(Updates to add Telecom Italia share price in eighth paragraph, analyst comment in ninth paragraph)