In shadow of KKR approach, Telecom Italia presses ahead with alternative plan

The Tim logo is seen at its headquarters in Rome, Italy November 22, 2021. REUTERS/Yara Nardi/File Photo

MILAN, Feb 14 (Reuters) - Telecom Italia (TIM) directors discussed on Monday an overhaul of Italy's biggest telecoms group, as newly appointed Chief Executive Pietro Labriola draws up an alternative to a takeover bid by U.S. fund KKR (KKR.N).

TIM must find a way to shore up its business after a string of profit warnings last year due to lower-than-expected revenue from a deal with DAZN to show soccer matches in Italy and stiff competition at home which puts pressure on margins.

TIM's board on Monday discussed Labriola's standalone plan in response to KKR's 10.8 billion euro ($12.2 billion) approach, which the group's top shareholder, French media company Vivendi (VIV.PA), has said is too low.

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In a statement after the meeting TIM said the board acknowledged the CEO was pressing ahead with assessing potential strategic options for the group, including splitting its vertically integrated business.

The statement made no reference to KKR's proposal.

To set a benchmark to evaluate the bid, TIM is considering splitting its domestic business between an infrastructure entity and a services arm, to unlock value and facilitate a long-mooted merger of its fixed assets with those of state-backed rival Open Fiber.

Such a move would meet the favour of Italian state lender CDP, which controls Open Fiber and is TIM's second-largest investor with a 10% stake. CDP last month backed Labriola's appointment, which was sponsored by Vivendi.

Sources have previously said TIM is unlikely to take any firm stance on the KKR proposal before March 2, when the company's board is expected to approve the in-house revamp.

TIM on Monday also confirmed former Brazilian unit executive Adrian Calaza would take over the role of chief financial officer starting March 1.

New York-based KKR approached the telecoms operator in November, conditioning its offer to backing from TIM's management and Italy's government.

Under Labriola's plan, a so-called NetCo would include all of TIM's fibre and copper network infrastructure and submarine cable unit Sparkle, sources have said. The network company would assume a significant part of TIM's net debt and most of the group's 42,500 domestic staff.

The service company would focus on a large portfolio of products, from connectivity to cloud, and would include TIM's Brazilian operations, the same sources said.

In a letter to Italian PM Mario Draghi on Monday, the country's leading unions emphasised their opposition to a TIM break up, saying a full-blown separation of the network business would put thousands of jobs at risk.

"As far as we are concerned, this remains a wrong option," the unions said.

($1 = 0.8843 euros)

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Reporting by Elvira Pollina; Editing by Alexander Smith and Grant McCool

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