Telecom Italia Pushes KKR to Drop Bid, Join Spinoff Plan

(Bloomberg) -- Telecom Italia SpA is seeking to get KKR & Co. to scrap a 10.8 billion-euro ($12.1 billion) takeover bid for the company by involving the U.S. private equity giant in an in-house plan to spin off its landline network, people familiar with the matter said.

The phone carrier, which has internally valued the bid as too low and lacking enough value-creation, instead wants to involve KKR in a plan to spin the landline network off into a new unit called NetCo, said the people, asking not to be named since the discussions aren't public.

The counter-proposal would still allow KKR to strengthen its grip over Telecom Italia's landline network once it's separated, the people said. No final decision has been taken on the plan, which remains preliminary, they said. KKR already owns 37.5% of the Telecom Italia secondary grid running from street cabinets to premises.

The project spearheaded by new Chief Executive Officer Pietro Labriola would align Telecom Italia with a government goal of building a single national fiber network while avoiding duplicate investments. The spun-off grid would be merged with that of state-backed rival Open Fiber SpA -- in which Macquarie Group Ltd. owns a minority stake -- through a process that could take several months and would need approval from European regulators, the people said.

Telecom Italia shares were suspended after falling 7.1% in Milan on Tuesday, giving the company a market value of 7.5 billion euros. The stock is down more than 19% so far this year.

An external spokeswoman for Telecom Italia said the board has not yet deliberated on KKR's expression of interest, adding that reports suggesting otherwise are speculative.

Spokespeople for Cassa Depositi and KKR declined to comment.

Single-Network MOU

Labriola is also seeking a new memorandum of understanding as soon as this week with Italy's state lender Cassa Depositi e Prestiti SpA on a merger with Open Fiber, the people said. Cassa Depositi, which owns about 10% of Telecom Italia, is also Open Fiber's largest shareholder.

As a prelude to a possible bigger deal, Telecom Italia is also set to unveil a range of new network-sharing agreements in rural areas, as well as commercial partnerships with Open Fiber, the people said.

Labriola, a 54-year-old veteran telecommunications executive, wants to transfer a significant portion of Telecom Italia's 30 billion euros in debt to the new entity as part of the spinoff, possibly along with thousands of workers, people familiar with the matter told Bloomberg earlier this year.

The plan would see all of the company's commercial services spun off into a separate unit called ServiceCo. Unions have vocally opposed the CEO's spinoff project.

Labriola envisages his new business plan as a workable alternative to KKR's preliminary bid, which top shareholders Vivendi SE and Cassa Depositi have both criticized as being too low, people familiar with the matter said earlier this year.

The phone carrier is also expected to book some asset impairments and non-recurring provisions that could be worth hundreds of millions of euros. These are also linked to a soccer broadcast deal with DAZN Group Ltd, people familiar with the matter said. Those plans could be announced as soon as this week when Telecom Italia reports full-year earnings on March 2, the people said.