From Breakingviews - Italian telecom network Plan B will be hurdle race
. Telecom Italia’s network, which generates an estimated 2 billion euros of annual EBITDA, may be worth 19 billion euros including debt, analysts say.
Ownership is also an issue. Italian state investor Cassa Depositi e Prestiti , which owns 60% of Open Fiber, wants to control the combined entity. Italy’s competition regulator also won’t approve a merger if Telecom Italia remains in charge. That implies any deal will require a transfer of cash from taxpayers to the private-sector incumbent.
An alternative would be for Telecom Italia to shrink its share of the equity by transferring a large chunk of its 23 billion euros of net debt to the merged company. However, the company’s bondholders, who rely on the cash flow from the network to sustain the company’s debt, may be reluctant to give up control.
Finally, regulators are likely to impose some extra demands before allowing the two companies to create a de facto Italian broadband monopoly. Telecom Italia shares, currently languishing below 30 cents, reflect the fact that a network deal will need to clear several hurdles before reaching the finishing line.
- KKR and Macquarie, which have minority stakes in Telecom Italia’s last-mile network and Open Fiber, respectively, also signed the non-binding memorandum of understanding.- KKR, which in April gave up on its attempt to take over Telecom Italia at 0.5 euros per share, owns 37.5% of Telecom Italia’s FiberCop unit. Macquarie owns 40% of Open Fiber, which is majority-owned by CDP. The state investor also has a 10% stake in Telecom Italia.Register now for FREE unlimited access to Reuters.
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