With the government’s approval, Tim sells the network to the American fund KKR

6 November 20236 months ago babelfish

What Tim's board of directors decided about the network. Facts, numbers, comments and the harsh reactions of Vivendi and Merlyn

Tim's network will pass to the Americans of the KKR fund.

This is what Tim's board of directors decided without the approval – or rather with the opposition – of Tim's largest shareholder, the French group Vivendi.

Here are the details on the decision of the board of directors of the former Telecom Italia.

HOW THE TIM BOARD VOTED ON KKR

TIM's board of directors approved by majority, 11 votes in favour, three against, the sale of the network to the American fund KKR.

KKR'S OFFER FOR THE TIM NETWORK

KKR's offer values the fixed network by up to 22 billion euros and allows the group a debt reduction of approximately 14 billion euros.

THE TIMES OF THE SALE OF THE TIM NETWORK

The completion of the transaction is expected by the summer of 2024.

SPARKLE REMAINS OUT OF THE OPERATION

Tim instead rejects Kkr's non-binding offer on Sparkle "deemed unsatisfactory". CEO Pietro Labriola has the mandate to negotiate and verify the possibility of receiving a binding offer at a higher value once the due diligence has been completed, the deadline for which has been extended until December 5th.

THE NUMBERS OF THE OFFER

However, the overall amount of the transaction should be less than 20 billion, excluding Sparkle, the company that controls the submarine cables, and the 2 billion prize that will only arrive when the merger with Open Fiber takes place.

TENSIONS BETWEEN TIM AND VIVENDI ON THE ROLE OF THE MEF

The board of directors also decided that it is not necessary to give the floor to the meeting to proceed with the sale, thus not implementing the requests of the company's main shareholder, Vivendi, which holds 23.75% of the shares. The French had also requested that the operation be passed through the related parties committee, as the MEF, which announced that it will join the purchase operation by investing 2.5 billion, controls CDP which in turn has a 10% stake in Tim. The board of directors' analyzes led to the conclusion that the Mef is not a related party, therefore no examination by the committee.

IS THE MEF A RELATED PARTY OR NOT?

However, an ordinary deliberative meeting should be held if the Mef was considered a related party or even if it was not considered a related party but under certain conditions. “The issue was examined – wrote Il Sole 24 Ore – both by the related parties committee and by the board of auditors, who asked Umberto Tombari and Roberto Sacchi for an opinion, respectively. Both opinions, based on the interpretation of the IASB international accounting standards, agree that while CDP, a Tim shareholder of just under 10% and a 60% shareholder of Open Fiber, is to be considered a related party, the Mef, which has booked 20% of the network's Netco.” ( here is the in-depth analysis from Start Magazine )

NO TO MERLYN'S PLAN

Tim's Board of Directors took note of the communication sent by Merlyn Partners and RN Capital Partners, the announcement of an alternative plan and the request for a change in governance with the replacement of CEO Pietro Labriola, "considering it not in line with the plan of delayering of the company, as presented to investors at the aforementioned Capital Market Day", we read in a note .

ROSSI'S COMMENT

The resolutions approved "with great responsibility and courage by the Tim Board go in the direction of doing the good of Tim, of the people who work there, of its shareholders, of the entire country". This is the comment of president Salvatore Rossi at the end of the three days of meetings. “A clear choice on a topic that has been discussed for many years. The transfer of the network to an infrastructure investor like KKR has also found the appreciation of the Government, which will support this operation with huge resources; gives the Tim group a growth perspective again. The new Tim of services – he concludes -, freer from financial burdens and stronger on the market, will be able to make its contribution to developing that capacity for innovation which is fundamental to accompanying families, businesses and public administration towards a totally digital future".

LABRIOLA'S WORDS

“It is not the conclusion of our journey but a new beginning. With this operation, in fact, we are giving life to the network infrastructure and at the same time allowing the new Tim to focus on the technological innovation needed to govern the complex digital services market and play a leading role" comments Tim's CEO Pietro Labriola. “Two years of head-on work ended with a historic decision: to start the birth of two companies with new development prospects. Both will be the point of reference for the digital transformation of our country because, thanks to this operation, they will be able to accelerate technological development in the telecommunications sector" he adds and thanks his collaborators: "always the strong point in every moment we have gone through together . Without them it would not have been possible to reach this important goal." “I also want to underline the important role of the competent institutions and authorities which are the best guarantee for the execution of this plan. Finally, I say to all our shareholders that we are giving Tim back the possibility of looking to a sustainable future and of being ready to seize the opportunities that lie ahead. Our objective is to continue on this path traced by the plan approved with the support of our main shareholders, always remaining open to dialogue and to the proposals submitted to us, in particular, by the most important shareholders". “We are convinced that the strength of our group, together with what we believe in, will lead to the company growing and generating value for everyone. Now let's go back to working with our heads down to put this great and historic decision of today's Board of Directors to rest" he concludes.

VIVENDI'S REACTION

“The rights of Tim's shareholders have been violated” and “the board of directors' decision is illegitimate”, this is how Vivendi comments on the sale of the network to Kkr. Vivendi “will use every legal tool at its disposal to contest this decision and protect its rights and those of all shareholders” it writes in a note.

THE REACTION OF THE MERLYN FUND

The reaction of the Merlyn fund was harsh: “The decision of the TIM Board of Directors to approve KKR's offer without submitting the decision to a vote of the shareholders' meeting is disrespectful and wrong. Adopting a resolution of such importance for the fate of the company, even if not unanimously as previously announced, without listening to all shareholders, constitutes a lack of respect for the market and the most basic principles of good corporate governance. Even more so given the commitments made by TIM and its Board of Directors with the adoption of the company's 'Public Code of Engagement'. An emblematic step is the fact that the legal advisors have defined a possible call of a shareholders' meeting as "dangerous". We ask ourselves dangerous for whom? It becomes clear that the interests of the shareholders are not the first objective of the Board of Directors in this matter. The actors involved preferred a hasty and opaque decision, not having given the shareholders any details of this operation. In today's press release they inform that the "certain" price that KKR is actually ready to pay is no longer the 20 billion euros as always reported by the press, but rather only 18.8 billion. The perimeter of the operation is vague and it is surprising that nothing is mentioned in the agreements, including the Service Level Agreements and the Master Service Agreement underlying it. Indeed, it is confirmed in the press release that the agreements are not yet finalized and that they will only be finalized at the closing, with a consequent realignment of the price which can only be downwards. Achieving the PNRR targets is not mentioned as one of the parameters used to decide to proceed with this operation. Not even a word on the projects relating to personnel and the fact that employment is a priority, other than a generic and worrying reference to the fact that the sale will allow "freeing up resources". All this can only be the prelude to a future of tension and uncertainty, which once again betrays the history of this great company and which deprives our country of a strategic asset for its security and digitalisation.

Merlyn, together with its partners in this project, reiterates, finally, the desire to reserve the right to proceed with any possible action that leads the Board of Directors to convene a shareholders' meeting as soon as possible where it can decide whether the plan currently approved independently by the Board of Directors whether it is what the shareholders want for their company or whether they prefer a different and, in our opinion, better future".

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TIM'S FULL STATEMENT ON THE BOARD'S DECISION

The Board of Directors of TIM, which met under the chairmanship of Salvatore Rossi on 3, 4 and 5 November, examined the binding offer presented last 16 October by Kohlberg Kravis Roberts & Co. LP ("KKR") relating to the purchase of assets relating to TIM's fixed network (the so-called NetCo), including FiberCop, by a company (Optics BidCo), controlled by KKR, as well as the non-binding offer on the entire stake held by TIM in Sparkle.

The Board, following a broad and in-depth examination, conducted with the assistance of primary financial advisors (Goldman Sachs, Mediobanca and Vitale & Co for the Company and Equita and Lion Tree identified by the independent Directors) and legal advisors (Gatti Pavesi Bianchi Ludovici Studio Legale Associato for the Company and Studio Carbonetti for the Independent Directors), approved by majority (with 11 votes in favor and 3 against) the binding offer for NetCo presented by KKR.

In particular, following board approval, a transaction agreement will be signed which regulates:

The contribution by TIM of a business unit – consisting of activities relating to the primary network, wholesale activity and the entire shareholding in the subsidiary Telenergia – in FiberCop, a company that already manages the activities relating to the secondary fiber network and copper;
The simultaneous purchase by Optics Bidco (as mentioned, a vehicle controlled by KKR) of the entire shareholding held by TIM in FiberCop itself, following the aforementioned contribution (FiberCop post contribution “Netco”). Furthermore, the transaction agreement provides for the signing on the closing date of the operation of a master services agreement which will regulate the terms and conditions of the services that will be provided by NetCo to TIM and by TIM to NetCo following the completion of the operation.

The Council also decided by majority (with 11 votes in favor and 3 against), on the basis of the opinions provided by professors Piergaetano and Carlo Marchetti, Andrea Zoppini, Giuseppe Portale, Antonio Cetra, Claudio Frigeni and by the lawyer Luca Purpura, which the decision the offer falls under the exclusive jurisdiction of the council. The Board therefore mandated the CEO to finalize and sign the binding contracts relating to the offer.

The binding offer values NetCo (excluding Sparkle) at an Enterprise value of 18.8 billion euros, without considering any increases in the aforementioned value deriving from the potential transfer of part of the debt to NetCo and from earn-outs linked to the occurrence of certain conditions which could increase the value up to 22 billion euros.

In particular, the offer assumes that the closing will take place by summer 2024 and provides that the price of the business unit being transferred to FiberCop is subject to adjustment (usual for this type of operation) at closing in relation to certain parameters and predefined targets , such as, inter alia , the cash and debt transferred, the level of working capital, the cost recorded in the last 12 months of the transferred employees and compliance with certain investment and installation objectives of the fiber optic network.

The payment of any earn-outs in favor of TIM is, however, linked to the occurrence of future events such as, in particular:

The completion, during the 30 months following the closing date, of some potential consolidation operations concerning NetCo and the possible introduction of regulatory changes capable of generating benefits in favor of NetCo, which could entail the payment to TIM of a maximum amount of 2.5 billion euros;
The introduction and entry into force by 31 December 2025 of sector incentives which could result in the payment to TIM of a maximum amount of 400 million euros.

The operation implements the so-called delayering plan launched by TIM during 2022 – with the aim of pursuing overcoming TIM's vertical integration through the separation of fixed network infrastructure assets from the services that TIM will continue to provide to its retail customers – and allows TIM to reduce its financial debt by approximately 14 billion euros at the time of closing (without considering the impact of the above price adjustments and any earn-outs), with an improved result, despite the deterioration of macro-economic conditions, compared to the forecasts presented on the occasion of the Capital Market Day on 7 July 2022. Thanks to the operation, TIM, in addition to reducing debt and freeing up resources, will have the opportunity to operate in the domestic market, benefiting the reduction of some regulatory constraints and may contribute to maintaining the strategic flexibility envisaged by the delayering plan.

At closing , TIM will benefit from a solid capital structure with a net debt to EBITDA ratio of less than 2 times (after lease ).

The completion of the operation is expected in the summer of 2024, once the preliminary activities have been completed and the conditions precedent have been satisfied (completion of the transfer of the primary network, Antitrust authorization, authorization regarding distortive foreign subsidies and Golden Power ).

As for the non-binding offer on Sparkle, the Board, having deemed it unsatisfactory, mandated the CEO to verify the possibility of receiving a binding offer at a higher value once the due diligence has been completed, the deadline for which has been extended until December 5th.

Finally, the Board took note of the communication sent by Merlyn Partners and RN Capital Partners, deeming it not in line with the Company's delayering plan, as presented to investors at the aforementioned Capital Market Day .

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tim-con-lok-del-governo-vende-la-rete-al-fondo-americano-kkr/ on Sun, 05 Nov 2023 19:46:24 +0000.