EU gives nod to KKR’s €22 billion TIM deal

NetCo comprises the primary and backbone fixed-line network business of TIM, as well as FiberCop – a joint venture between TIM and KKR comprising TIM's secondary fixed-line network. The European Commission approved the deal unconditionally, concluding that the transaction would raise no competition concerns in the European Economic Area.

KKR and TIM agreed on a master services agreement that will govern the relationship between NetCo and TIM post-transaction. The Commission’s investigation focused on the impact of the transaction would have on the market for wholesale broadband access services in Italy. As a result, it has concluded that KKR would not have the ability to restrict access to passive services, stating:

“For each wholesale product the number of available networks and wholesale providers will stay the same and the market power of NetCo will not materially increase as compared to TIM or FiberCop today.”

It also judged that the transaction would not increase the likelihood of coordination between NetCo and OpenFiber, stating: “Fastweb will continue to exert competitive pressure on NetCo and its long-standing competitor, Open Fiber. In addition, NetCo and Open Fiber will likely continue to compete, both to attract new customers and to roll-out fibre network, either in new areas or in each other's areas.”

Upon getting the green light, TIM put out a brief statement: “TIM welcomes the positive assessment received from the European Commission regarding the transaction for the sale of NetCo to Optics BidCo, a subsidiary of Kohlberg Kravis Roberts & Co. L.P. ‘KKR’ and notified by the buyer on April 19. The European Commission's Phase 1 decision confirms that the transaction will be completed on schedule.”

The deal, which has been something of a saga in the telecoms world, got given the go ahead by the Italian government in January this year, with regulators accepting a set of at the time unstated commitments made by KKR and TIM to protect TIM's network, which it sees as a strategic national asset.

It initially announced plans to split its network operations from its services business and sell it off in 2022. What followed was a series of bids and counter-bids, with KKR and rival bidder a consortium of Cassa Depositi e Prestiti (CDP) and Macquarie repeatedly upping their non-binding offers. TIM eventually decided to go with the €22 billion KKR offer – though Vivendi, a major shareholder, was not happy with the decision which prompted another protracted period of corporate soap opera.

In January, after Italian regulators greenlit the deal, Vivendi was still grumbling and reportedly sent a letter to the EU as it continued to try and put a spanner in the works. Reuters had sight of a letter addressed to the EU Directorate General for Competition, and according to quotes lifted from the letter, the firm asked the European Commission to pay "attention to the role and involvement of the Ministry of Economy" in the deal.

Its gripe seemed to be around the idea that when the deal is presented to the EU it would not give an accurate appraisal of the state's role in the transaction. "Despite the relevance of the Treasury involvement in the transaction for the Commission's competition assessment, Vivendi is concerned...that the notification may fail to properly disclose it or may downplay it," the letter apparently read.

None of this seems to have swayed the European Commission in any case, and now the last main hurdle towards the deal closing seems to have been leaped – though we wouldn’t bet against more drama to come.