Telecom Italia sounds out investor interest as govt reviews network options

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By Elvira Pollina and Giuseppe Fonte

MILAN (Reuters) - Telecom Italia (BIT:TLIT) (TIM) is exploring investors' interest in buying into its assets, sources familiar with the matter said on Friday, as officials within Italy's right-wing government seek agreement on how to fix the debt-crippled company's woes. Italy's government last month said it would seek to identify "the best market-friendly options" by the end of the year for struggling TIM, placing a planned bid for the phone group's grid by state lender CDP on hold.

The mooted multi-billion deal, part of a wider project to create a unified Italian network company with CDP's broadband unit Open Fiber, was a focal point of CEO Pietro Labriola's strategy to break up TIM into several units and cut its 25 billion euros ($26.4 billion) debt pile.

Labriola is looking to prepare for any outcome of talks within the government. The executive has been working in particular with U.S. fund KKR recently, three sources familiar with the matter told Reuters. The U.S. fund, which already owns a stake in TIM' last-mile network and had an attempt to take over TIM as a whole rejected this year, has recently renewed its interest in tightening its grip on TIM's landline grid, the sources said. TIM has also had contacts with other potential investors interested in buying into its domestic service operations, including French telecoms group Iliad and Poste Italiane, the people said.

Any deal involving foreign investors and TIM assets will be subject to government scrutiny under "golden power" regulation, which gives Rome the possibility to block the transaction.

According to the sources, at least two suitors have expressed interest in TIM's Brazil-listed subsidiary, TIM SA However, in Labriola's view, the sale of a unit generating some 30% of the group's core profit could be dangerous for TIM's credit rating, unless it is pitched at a premium valuation, according to the people. Telecom Italia, KKR, Poste and Iliad all declined to comment.

Discussions within Prime Minister Giorgia Meloni's administration centre on how to win control of TIM's prized landline grid, an asset deemed as strategic. The government has yet to kick off talks with TIM's stakeholders - including top investor Vivendi (OTC:VIVHY). Raising cash to cut debt and shore up its finances is key for TIM, which has been under pressure for years in its fiercely competitive domestic market and has been hit by multiple credit rating downgrades into junk territory over the past year.

($1 = 0.9475 euros)