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Tim, because only Vivendi is gloating over Merlyn’s anti-KKR plan

6 months ago babelfish

Tim, because only Vivendi is gloating over Merlyn's anti-KKR plan

What does the plan presented by Barnaba ( Merlyn fund ) and Siragusa (RN Partner) foresee for Tim's network in contrast with that of KKR and what do financial analysts think

There is only Vivendi to rejoice in the anti-KKR plan launched by Alessandro Barnaba's Merlyn fund with Stefano Siragusa's Rb Capital.

The move by the Barnaba-Siragusa duo (in the photo) rather than a truly articulated and alternative plan to that of the American fund KKR (which made a real offer shared by the Ministry of Economy) is an act of obstruction to try to put TIM's board of directors will be embarrassed (which will meet on November 3 to decide on KKR's offer) and perhaps gain time in view of a changed political climate, given that the government's stoppage with the position taken on Saturday by the presidency of the The Council – after having agreed on the "no" also with the Ministry of Economy – has currently effectively put the kibosh on those in the government majority and even in non-second-rate circles of Palazzo Chigi who would like to delve deeper into Merlyn's plan.

Also because, as emerges from the text of the plan (see below), the drafters of the project want to be characterized as pro-government due to the role that is outlined for the Cassa Depositi e Prestiti and for the state approach on the TIM network (without a more or less modulated presence of foreign funds such as that of KKR).

Even though Merlyn's project has an industrial logic (in essence it would follow the approach created with the birth of Terna and Snam respectively, the electricity and gas network), the financial analysts who have expressed their opinions so far are all critical of the plan Barnaba and Siragusa.

INTESA SANPAOLO'S COMMENT ON THE MERLYN PLAN FOR THE TIM NETWORK

The comment by Intesa Sanpaolo analysts is significant according to which – we read in Mf/Milano Finanza – «it remains unclear how Cdp could become the main shareholder of the network company and whether the sale of ConsumerCo and Tim Brasil could allow the reduction of the debt, necessary to rebalance the financial structure of the company". Furthermore, Intesa analysts see "the risk of worsening (the situation, ed.) with further legal disputes" given Vivendi's opposition.

WHO IS SKEPTICAL ABOUT MERLYN'S PLAN

Analysts at Banca Akros focus on another aspect: «Skeptical regarding aggressive cost reduction measures that do not include large-scale staff cuts». Furthermore, the price of one euro per share is defined as "completely aspirational based on arbitrary multiples of a ratio between enterprise value and debt equal to 8 times, which no telecommunications operator can reach".

IS MERLYN EMBARRASSING TIM'S BOARD?

Banca Akros analysts – Radiocor notes – are focusing on what the consequences of the presentation of the plan could be on the offer of KKR and Treasury. The timing of the booking of the plan is defined by experts as "perfect for interference", given the next meeting of the council, set for November 3. «Vivendi should definitely like this plan as it meets its agenda in terms of network assessment and sales attitude, management change and yet another strategic turn. Obviously, there is no official agreement between the two parties", they underline. The position taken by the government should "be strong enough to block the plan" presented by Barnaba and Siragusa, because to exceed 5% and be able to ask for an assembly you need the green light from the golden power.

HOW MUCH DOES VIVENDI LIKE THE BARNABA AND SIRAGUSA PLAN?

The Banca Akros report highlights the implicit satisfaction of the French at Vivendi for the move by Barnaba and Siragusa: the plan "should please Vivendi" as it "satisfies its agenda in terms of evaluation of the network and attitude to sales, exchange rate of management and yet another strategic change", however the French company "is in any case not able to influence the board's votes, as it currently has no director".

THE DOUBTS ABOUT THE TIMVALUE PLAN

Equita analysts do not hide their "perplexities". The document «does not contain quantitative elements, beyond the target multiple of 8 times the ebitda from which a possibility of relaunching the stock in the 1 euro area within 24 months would arise, and does not contain concrete elements on the opportunities for the sale of assets and on the support for the plan by the other stakeholders involved (from CDP to Macquarie, to KKR, to Vivendi, to the government)" we read in the report. Furthermore, the Equita experts continue, the plan "also raises strong doubts about financial sustainability". This is because to reduce debt, one of Tim's main problems, the proposed solutions, i.e. the sale of Tim Brasil and ConsumerCo, would not be sufficient.

WHAT THE EQUITY REPORT SAYS

The Equita report then goes into detail, as observed by Mf/Milano Finanza : «At today's market values, the sale of Tim Brasil does not improve the group's leverage, which would actually rise from 3.9 times to 4.3 times the ratio between debt and ebitda and would significantly reduce the operating cash flow (ebitda-capex around 500 million compared to the current 1.3 billion), leaving the group with over 15 billion in debt after leasing with the related refinancing cost issues". The sale of Tim Brasil would therefore have a positive financial impact "only if conducted with a very high premium compared to current market values".

The sale of ConsumerCo, however, "can hardly take place at interesting values ​​before completing the turnaround". Currently for Equita it would have an enterprise value of approximately 2.5 billion euros. Its sale would have "a very modest impact on the deleverage of the group and with an impact on leverage that is once again negative". Equita maintains a buy rating with a target price of 0.40 euros.

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THE TIMVALUE PLAN OF BARNABA AND SYRAGUSA

There is an alternative industrial solution for the relaunch of TIM, which does not require funds from the Government and does not liquidate the network that has belonged to the Italians for 100 years.

We find ourselves at an epochal moment in TIM's history, a moment in which capital allocation decisions are being made that will definitively impact the future of our company.

But in the case of TIM, it is not just a company. This is about Italy, the progress of an entire country and its ability to continue to innovate and look to the future with the eyes of a leader, while preserving its heritage.

TIMValue firmly believes that there is an alternative future for TIM capable of responding to the country's strategic needs and creating value for all shareholders without the liquidation of the network that has been Italian for 100 years.

TIMValue has already officially shared its plan with the board of directors (download the letter), the guidelines of which are:

  1. Maintain NetCo and the entire network in TIM. The country needs and deserves to maintain control of the telecommunications network, including Sparkle and FiberCop, which is one of its most strategic assets. The network, in its entirety, is the tool at the service of the Government to guarantee the PNRR and the digitalisation of the country;
  2. Create TechCo . TechCo, the new TIM, will be an Italian company with global ambitions that will effectively integrate NetCo's current assets and EnterpriseCo's expertise, know-how, customer relationships, supplier ecosystems and investee companies such as Olivetti, Telsy , Noovle and related infrastructure such as data centers and PSN contracts. The new TIM, focused on its infrastructure capable of offering exclusively unregulated services, is named in our plan TechCo to clearly highlight TIM's new strategic vision as opposed to a simple sale of NetCo. TechCo will have the ambition to become the country's reference partner to support the Public Administration and Italian companies in their digital transformation journey. The current retail assets will be sold and TechCo will focus only on the business segment and on offering unregulated services, thus avoiding competing in any consumer segment. In the regulated market, however, TechCo will act as a pure wholesaler, serving all operators with a B2B approach, thus resolving most of the antitrust issues a priori. TechCo will also be the main actor responsible for the implementation of PNRR plans at a national level, respecting time and budget. Thanks to the clear strategic positioning, TechCo will act as a market aggregation point (transforming from potential prey to predator) in the sector of ICT, value-added services and edge computing, enabling the company and the country to achieve scale necessary to compete in Europe too;
  3. Single network led by CDP without requesting funds from the Government . Create the national network within TechCo and with CDP as the reference shareholder without requesting money from the country in a critical moment like this, through the transfer of OpenFiber, deprived of the black areas to avoid antitrust issues a priori, in Telecom Italia, thus facilitating , the increase in CDP's share in Telecom Italia. Macquarie and KKR would also be encouraged to do the same, contributing in kind their respective stakes in black-free OpenFiber and Telecom Italia's Fibercop. The black areas of OpenFiber can be easily sold because they are an asset that is attractive to the market.
  4. Restructure, spin off and sell TIMConsumer . TIMConsumer will be restructured, repositioned as a digital platform for customers and, as soon as sustainable, the individual parts will be spun off and sold to different entities. Discussions with potential buyers will begin immediately, with the aim of accelerating the process and reducing the debt burden as quickly as possible and ensuring that the restructuring process is aimed at creating the most attractive set of assets according to wishes of potential buyers;
  5. Sell ​​TIM Brasil . The stake in TIM Brasil, although of great value, is not strategic. The sale of TIM Brasil, at the right price, will be an important tool to finance the transformation of the Company and the turnaround of TIMConsumer;
  6. Leave TechCo listed on the stock exchange and then rename it Telecom Italia

The TIMValue plan has distinctive characteristics

  • It focuses exclusively on the industrial content, aimed at enhancing the value of the Company's main assets rather than their liquidation, preserving skills, safeguarding the workforce, and therefore allowing the restructuring of the capital that creates the conditions necessary for the sustainability of the debt in a natural;
  • It guarantees the achievement of short-term objectives and the continuity of infrastructure development plans. Consider the PNRR a priority and achieve long-term stability; the Company's deadline to guarantee the country's digitalisation objectives and protect the workforce and all related industries;
  • It is a market operation, transparent to the market, carried out on the market and cannot under any circumstances be defined as state aid;
  • Eliminates all issues related to the definition of NetCo's perimeter and subsequent analyzes and assessments by AGCOM;
  • It is not subject to any control by the Antitrust, AGCOM or the State Aid Commission.

The TIMValue plan is inclusive

  • It promotes better governance in TIM's Board of Directors for the benefit of all shareholders and, in particular, its main existing shareholders, such as Vivendi and CDP
  • Promotes the participation of all current stakeholders, including KKR, Macquarie and OpenFiber, and all future stakeholders who have already examined the dossier or are willing to examine it, in the interests of the company and the country

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/piano-rilancio-tim-timvalue/ on Mon, 30 Oct 2023 14:02:47 +0000.