The Telecom Italia board has met with Reuters to discuss a takeover proposal from KKR

Reuters. File photo: Telecom Italy’s logo for the TIM brand was seen on April 9, 2016 in a building in Rome, Italy. REUTERS / Alessandro Bianchi / File photo

By Elvira Polina, Valentina Ja and Pamela Barbaglia

Board of Milan (Reuters) Telecom Italy (MI 🙂 (TIM) At 1400 GMT on Sunday met to discuss a takeover proposal from KKR, two sources said, adding that US funds have added plans to build a specific network of Italian phone groups where it is already an investor.

TIM’s fixed line is its most valuable asset and Rome considers it strategic, having the ability to block any unwanted action.

The government of Prime Minister Mario Draghi is also aware of the need to curb TIM’s revenue loss, reducing the debt-burden group at a time when it needs to increase investment and protect its 42,500 domestic workers, sources said.

TIM CEO Luigi Gubitosi signed a 8 1.8 billion ($ 2 billion) deal with KKR last year that gave New York-based fund a 37.5% stake in FiberCop, the unit that owns TIM’s last-mile network connecting street cabinets to people’s homes.

In the face of aggression by TIM’s top investor Vivendi (OTC :), Gubitosi is looking at how to extract money from TIM’s assets, especially as fiber optic rival is reconsidering plans to integrate TIM’s fixed-line grid with Open Fiber.

Under the auspices of the previous government, the project was run by Draghi’s executive.

KKR’s scheme envisions a single network to run as a government-regulated asset with the model used by energy grid company Terna or gas grid firm Snam, says one of the two sources and a third person close to the subject.

It has also studied possible plans to work with Marco Patuano, former CEO of rival private equity firm CVC TIM, now a senior adviser to Nomura in Italy, said four people close to the matter.

In order to overcome the political and regulatory opposition to the single network plan, Gubitosi opened up about the possibility of controlling TIM’s collective entity, which Vivendi had always been opposed to.

Vivendi, which is pushing for Gubitosi’s replacement in the lead and has suffered a major capital loss on 24% of TIM’s shares as its shares have fallen to an all-time low, does not oppose KKR’s offer, two sources said.

One of them said that Vivendi might also be open to considering moving forward with the CVC. Vivendi generally favors all options for raising the standard of TIM but wants to be directly involved in the discussions, another source said.

A spokesman for Vivendi has now denied any contact with the fund, saying the French media group is ready to work with Italian authorities and organizations for the long-term success of TIM.

Golden Powers

Activities around TIM come as Italy prepares to deploy billions of euros from the European Union’s recovery fund to increase digital connectivity and connect the rest of the bloc.

To oversee a strategic asset such as TIM’s fixed-line grid, state investor CDP took a 9.8% stake in the former phone monopoly owner, becoming the second largest investor after Vivendi.

The CDP will present a new strategic plan on Thursday after Dario Scanapico, a close ally of PM Draghi, took the reins recently.

CDP has invested in both Terna and Snam as well as gas distribution grid Italgas through Reti vehicles set up in 2012 for network resource sharing.

The KKR plan can only proceed with the consent of the government because Rome has special anti-takeover powers to protect companies considered of strategic importance from foreign bids.

Italy has so far used this so-called “golden power” four times since 2012 to veto foreign interests in the country. Two of them are under the ninth-month-old government of Draghi.

TIM’s stable network is also a key asset supporting the group’s 29 29 billion gross debt, which was further cut below the investment grade level by credit rating agency S&P on Friday.

S&P says the single-network project could weaken TIM’s business profile if it loses control of the entity, making it impossible to assess the impact of potential transactions without knowing the details, as revenue could help TIM reduce debt and prevent a collapse. Revenue

News of Sunday’s extraordinary board meeting was first reported by the Italian daily Corriere della Sera.

TIM’s revenue has shrunk by five times in the last five years due to aggressive competition from rivals such as Iliad, Vodafone (NASDAQ :), Wind Tre and Fastweb.

(1 = 0.8859 euros)

(Additional reporting and writing by Valentina Ja; editing by Andrew Hevens and David Evans)

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