TIM to finalise grid sale only if service business remains sustainable

Telecom Italia (TIM) will finalise the sale of its prized network only if the finances of the service business that will be left behind remain sustainable, the head of Italy’s biggest telecoms company said on Thursday.

Debt-laden TIM has granted U.S. fund KKR an exclusivity period until the end of September to negotiate a binding bid for its landline grid on the back of a preliminary proposal worth around 23 billion euros ($25 billion).

The grid sale is a key part of TIM CEO Pietro Labriola’s efforts to reshape the debt-crippled former phone monopoly, hit by cut-throat price competition on its home turf which has steadily eroded earnings over the past decade.

However, the plan has met opposition from TIM’s top investor, Vivendi (EPA:VIV), which is demanding a higher valuation to back a deal and raising concerns over the sustainability of the remaining service business.

TIM won’t pursue the network deal if the price offered is below a “certain threshold” which would enable the cash-bleeding company to slash its 26.2 billion euros debt pile, Labriola told Il Sole 24 Ore newspaper on Thursday.

“The deal will be finalised only if…the remaining [service] business stays financially and industrially sustainable,” added Labriola, whose term expires next year.

With its 24% voting stake, French media giant Vivendi could throw a spanner in the works at any TIM shareholder meeting to vote on a deal, which in Labriola’s view could be completed within 12 months.

TIM’s Milan-listed shares fell as much as 3% on Thursday morning after the company reported second quarter earnings broadly in line with expectations, helped by strong performance from its Brazilian business unit as sales at domestic level edged higher.

“The negative element remains the higher-than-expected net debt”, which was 130 million euros above consensus, broker Akros said in a research note.