* Goal is to spin off fixed line, run it as govt-regulated
asset
* KKR targets TIM-Open Fiber grid merger but decision with
govt
* Embattled TIM CEO pushing to revive single-network plan
* Rival CVC has also looked at plan for TIM - source
(Adds details)
By Elvira Pollina, Valentina Za and Pamela Barbaglia
MILAN, Nov 21 (Reuters) - The board of Telecom Italia (TIM)
meets on Sunday at 1400 GMT to discuss a takeover
proposal from KKR, two sources said, adding the U.S.
fund plans to carve out the Italian phone group's fixed network
in which it is already an investor.
TIM's fixed line is its most prized asset and is deemed
strategic by Rome, which has powers to block any unwanted moves.
The government of Prime Minister Mario Draghi is also aware
of the need to stem TIM's revenue haemorrhage, shoring up the
debt-laden group at a time when it needs to step up investments,
and protect its 42,500 domestic workers, sources have said.
TIM CEO Luigi Gubitosi last year struck a 1.8 billion euro
($2 billion) deal with KKR which handed the New York-based fund
a 37.5% stake in FiberCop, the unit holding TIM's last-mile
network connecting street cabinets to people's homes.
Under fire by TIM's top investor Vivendi, Gubitosi
has been looking at how to squeeze money out of TIM's assets,
revisiting in particular a plan to merge TIM's fixed-line grid
with that of fibre optic rival Open Fiber.
Sponsored by the previous government, that project had run
aground under Draghi's executive.
KKR's scheme envisages a single network to be run as a
government-regulated asset along the model used by energy grid
company Terna or gas grid firm Snam, one of
the two sources and a third person close to the matter said.
Also rival private equity firm CVC has studied possible
plans for TIM working with former TIM CEO Marco Patuano, now a
senior adviser to Nomura in Italy, four people close to
the matter said.
To overcome political and regulatory opposition to the
single network's plan, Gubitosi has opened up to the possibility
of TIM ceding control of the combined entity, something which
Vivendi had always been opposed to.
Vivendi, which is pushing to replace Gubitosi at the helm
and faces a steep capital loss on its 24% stake in TIM's as its
shares languish near all-time lows, does not oppose KKR's
proposal, two of the sources said.
One of them said Vivendi could also be open to considering
CVC's one were it to go ahead with it. Vivendi generally looks
favourably on all options to boost TIM's value but wants to be
directly involved in discussions, another source said.
A spokesperson for Vivendi denied any contacts with funds at
present and said the French media group remained ready to work
alongside Italy's authorities and institutions for TIM's
long-term success.
GOLDEN POWERS
The activism around TIM comes as Italy prepares to deploy
billions of euros of European Union's recovery funds to boost
digital connectivity in the country and catch up with the rest
of the bloc.
To oversee a strategic asset such as TIM's fixed-line grid,
state investor CDP has taken a 9.8% stake in the former phone
monopolist, becoming its second-largest investor after Vivendi.
CDP will present a new strategic plan on Thursday after
Dario Scannapieco, a close ally of PM Draghi, recently took the
reins.
CDP has invested in both Terna and Snam, as well as gas
distribution grid Italgas, through its CDP Reti vehicle
it set up in 2012 to hold stakes in network assets.
KKR plan can only proceed with the government's assent
because Rome has special anti-takeover powers to shield
companies deemed of strategic importance from foreign bids.
Italy has so far used these so-called "golden powers" four
times since 2012 to veto foreign interests in the country. Two
of these have been under Draghi's ninth-month old government.
TIM's fixed network is also a key asset supporting the
group's 29 billion euro gross debt which was cut further below
the investment grade level by credit rating agency S&P on
Friday.
S&P said the single-network project could weaken TIM's
business profile if it lost control of the combined entity,
however it was impossible to evaluate the impact of a potential
transaction without knowing the details, because the proceeds
could also help TIM cut debt and counter falling revenues.
News of Sunday's extraordinary board meeting was first
reported by Italian daily Corriere della Sera.
TIM's revenue have shrunk by a fifth over the past five
years hit by aggressive competition at home from rivals such as
Iliad, Vodafone, Wind Tre and Fastweb.
($1 = 0.8859 euros)
(Additional reporting and writing by Valentina Za; editing by
Andrew Heavens and David Evans)
Vodafone (VOD)