Telecom Italia Strategy Isn't in Best Interest of Shareholders; Plan FVE Cut After Decision on KKR

Telecom Italia’s, or TIM's, turbulent story is taking a new direction. KKR’s offer to acquire the company for EUR 0.505 per share has been on hold since November 2021, but it is likely it will be put aside in favor of the new 2022-24 strategic plan. The plan’s main goal is to structurally separate all of TIM’s network assets and service businesses to unlock value. Telecom Italia has already carved out its most important network assets in recent years (Inwit and FiberCop), so we believe any new structure will only result in marginal improvements. TIM’s best path would be to merge its fixed network (FiberCop) with Open Fiber as soon as possible, but uncertainty over this deal is very high as it requires political approval, and labor unions have also declared their opposition to breaking up TIM. Shares are down by more than 15% on doubts about the new strategic plan, which we share. Although we are maintaining our EUR 0.45 fair value estimate until there is a final decision on the KKR offer (expected in the next few weeks), we are planning to significantly cut our fair value estimate to account for deteriorating financials in future. Group EBITDA is expected to decline by a low-teen percentage during 2022 and we are also not optimistic about the medium-term outlook.