MILAN (Reuters) - Telecom Italia has presented shareholders of smaller rival Open Fiber a list of funds that could buy into the fast broadband company as part of plans to create a single nationwide fiber network, three sources close to the matter said.
Italy is keen for the former phone monopoly to join forces with Open Fiber to avoid duplicating investments and roll out a future-proof full fiber network.
But a series of problems, including questions over how much Open Fiber is worth and where funding will come from, have slowed down efforts to tie the knot.
“A few weeks ago Telecom presented Open Fiber shareholders with a list of long-term investor funds that could come to the rescue by buying part of the company,” one of the sources said.
Another source said Telecom Italia (TIM) was mulling setting up a special purpose vehicle (SPV) for infrastructure funds to invest in Open Fiber and had pitched the project to Australian investment bank Macquarie, among others.
Open Fiber, founded four years ago by Italy’s biggest utility Enel, is jointly owned by Enel and state lender Cassa Depositi e Prestiti (CDP).
Under the SPV scheme, Enel could cash out its stake and exit the fiber network business.
Enel, CDP, TIM and Macquarie declined to comment.
CDP, which controls Italy’s power and gas transport networks and is keen to create a single broadband network, is also TIM’s second-biggest investor behind French media giant Vivendi.
“This is a deal for passive investors, mainly infrastructure funds, sovereign wealth funds and insurers like Allianz,” said one banking source, adding private equity players were staying away due to low returns and tricky governance at the company due to fractious relations between TIM and Vivendi.
CDP has had ties with a series of sovereign wealth funds including Qatar and Kuwait.
Financial sources said banks acting on behalf of TIM were sounding out infrastructure funds to gauge appetite for a deal, cautioning talks were at an early stage and it was still unclear whether any fund would come forward with a serious proposal.
In June, TIM, Enel and CDP signed a non-disclosure agreement as discussions to evaluate possible forms of integration on the fiber front got under way. So far, differences on the price tag of Open Fiber have slowed down efforts to reach a deal with Enel, which values the business at up to 8 billion euros ($8.8 billion) - a far cry from the 1.5-4.0 billion euros some analysts have estimated.
Two of the sources said that under TIM’s proposal Open Fiber was valued at 5-6 billion euros, meaning Enel would get north of 2.5 billion euros if it opted to sell.
Other issues still to be ironed out include whether the plan will involve merging Open Fiber with the whole of Telecom Italia or just its broadband business and whether the creation of a single network will throw up antitrust problems.
Reporting by Elvira Pollina and Stephen Jewkes in Milan, Stefano Bernabei in Rome and Pamela Barbaglia in London; Editing by Mark Potter