Italian fund F2i to acquire 10% of Telecom Italia's NetCo

The well documented efforts of Telecom Italia (TIM) to sell its fixed network took two major steps forward in recent days, suggesting that the Italian telco may yet achieve its goal, although certain shareholder objections to the controversial move remain a potentially disruptive factor.

Italian infrastructure fund F2i has confirmed plans to invest about €1 billion (US$1.08 billion) in the purchase of around 10% of NetCo. The fund had previously signalled its intention to become a co-investor in the grid, but first needed to hit the funding target of F2i-Rete Digitale Fund VI.

According to F2i, the funding target was quickly attained, which it said demonstrated "the interest of investors, in particular banking foundations, pension funds, insurance companies and family offices, in participating in the transaction."

Last week, TIM's management also announced that Italy's government had cleared the planned sale of the fixed grid, dubbed NetCo, to US investor KKR under the so-called golden power rule.

TIM said the approval came after the companies made commitments that the government deemed to "be fully adequate to guarantee the protection of the strategic interests connected with the assets involved in the transaction."

The KKR deal is worth up to €22 billion ($23.95 billion) and forms a sizeable part of TIM's strategy to reduce debt and restore financial stability.

A fine Italian hand

Given that the Ministry of the Economy and Finance has already pledged to buy a stake of between 15% and 20% in NetCo, with a maximum outlay of €2.2 billion ($2.39 billion), F2i's investment means that at least 30% of the network business would remain in Italian hands. In addition, state lender Cassa Depositi e Prestiti (CDP), which already owns 9.8% of TIM, could also invest in the venture.

The acquisition is expected to be finalized around mid-2024. However, there remains one fly in the ointment: Vivendi, which holds close to 24% of TIM, has made it clear on several occasions that it is not remotely happy about the proposed NetCo transaction. The French media group has long opposed the plan to separate the networks unit, arguing that it has been undervalued by TIM's managers.

On December 15, Vivendi made good on its threats to take legal action by filing a complaint in Milan with a view to having the operation annulled. TIM said it had received notification of the writ, but saw no reason why it should change its plans to finalize the deal without delay.

Indeed, Light Reading has previously pointed out that TIM's market capitalization in Milan is just €6 billion ($6.5 billion), and that Vivendi has not really offered any strategic alternatives.

The overarching aim of TIM management and the Italian government is to save TIM by cutting its debts and putting it on a surer financial footing. When it announced third-quarter results for the end of September 2023, its net debt stood at €26.3 billion ($28.6 billion), up €936 million ($1 billion) on the end-2022 figure.

The operator expects to slash a huge €14 billion ($15.2 billion) off that figure when the deal closes. The next few months will be a tense period for TIM's management, and it remains to be seen if Vivendi will succeed in its bid to delay, halt or even scupper the transaction.