Italy’s largest telecoms operator Telecom Italia's offer for broad band operator Metroweb was finalized yesterday. It was definitely sent to state backed lender CDP, which owns 46.2% of the company. But majority shareholder private infrastructure fund F2i, with 53.8%, as of yesterday said it had received no word.
That mystery aside, Telecom offered about €820 million for Metroweb, and the offer is said to include various transaction options: all cash; cash for F2i and a stake of 15-20% of international cables unit Sparkle for CDP; a renewal of a former proposal for a joint venture to construct fiber optics networks, with Telecom owning 67% and CDP 33%.
Telecom’s offer competes with a rival bid from state controlled utility Enel, which sources said last week was interested in acquiring control of Metroweb as part of plans to build a high speed broadband network in Italy.
Enel earlier this year set up a broadband division to invest €2.5 billion, placing it in competition with Telecom. Italy does not have a single unified national broadband network.
Now it's up to the CDP to decide between the two offers, considering that financial advisors for Enel, which hasn't discussed the possibility, have proposed an alternative (with 51% CDP) to build out the new infrastructure with Enel Open Fiber (a €4 billion investment).
Enel’s valuation for Metroweb — but, the fact being there's no definitive offer yet — is €776 million. It's a valuation that, without a doubt, assumes this will be a political decision.
The formal offer followed a last phone call between the Chairman of CDP, Claudio Costamagna, and the new CEO of Telecom, Flavio Cattaneo.
Yesterday's discussion is said to have acknowledged that the valuations of Sparkle are unreconcilable, even if on paper there's still an exchange option that Telecom may be open to.
Costamagna is said to have made a proposal that could never have been acceptable to a public company like Telecom, given that it implicitly valued the international cable subsidiary at less than seven times EBITDA.
The CDP chairman proposed an exchange between Metroweb and Sparkle, adjusting for the difference in valuation with the transfer of half a billion in debt to the latter, which currently is debt free and, with an EBITDA of around €200 million, with a multiple of 15 times, analogous to that of Metroweb, could be worth as much as €3 billion.
The option of a 67%-33% joint venture is still on the table, even if it's not anticipated that once the investment is completed that CDP's stake can be acquired using Telecom shares instead of cash — the latter option having emerged the year that Andrea Guerra served as a government consultant.
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