CPP Investments Acquires Significant Minority Stake in Italy's NetCo
Canada Pension Plan Investment Board (CPP Investments) is set to expand its portfolio in Italy's digital infrastructure, having agreed to secure a 17.5 percent stake in NetCo for up to $2.9 bn.
This move is part of a larger transaction that places NetCo's enterprise value at approximately $27.5 bn. NetCo, emerging from Telecom Italia S.p.A, represents Italy's most extensive telecom network and is currently being acquired by the Optics BidCo investor group.
This group is spearheaded by Kohlberg Kravis Roberts & Co. L.P. (KKR) and includes notable members such as a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), the Italian infrastructure fund F2i, and the Ministry of Economy and Finance of the Italian Government.
NetCo's operational focus will be on its fixed network assets, which are in the process of being spun off from Telecom Italia. It aims to offer nationwide connectivity to both residential and commercial spaces through an open-access wholesale model, utilizing a blend of copper and fiber technologies.
James Bryce, managing director and global head of infrastructure at CPP Investments, highlighted the strategic importance of NetCo, stating, “NetCo will provide critical end-to-end data connectivity services that support the functioning of the Italian economy.”
He expressed confidence in the investment's alignment with long-term, quality digital infrastructure development across Italy, while also anticipating beneficial, long-term, risk-adjusted returns for the fund. Bryce also sees potential for further infrastructure investments in Italy by CPP Investments.
The investment strategy for NetCo includes pushing forward a comprehensive network upgrade, enhancing service quality and capacity with fiber-based solutions, phasing out outdated copper technologies, and improving IT systems and operational efficiencies.
This transaction is slated for closure in the summer of 2024, pending the fulfillment of customary conditions.
Kavit Majithia of Mobile World Live also reports Canada fund agrees deal for NetCo stake:
A Canadian investment fund committed to invest CAD2.9 billion ($2 billion) for a minority stake in Telecom Italia’s (TIM) fixed network business NetCo, joining a KKR-led consortium which has agreed a deal to buy the entire unit from the operator.
The Canada Pension Plan Investment Board (CPP) stated it has entered into an agreement to join KKR’s Optics Bidco investor group, a move that will give it a 17.5 per cent interest in the fixed business.
The investor group, which includes involvement from a wholly-owned subsidiary of the Abu Dhabi Investment Authority, Italian infrastructure fund F2i and the Italian government, struck a deal to acquire NetCo for €18.8 billion in late 2023.
CPP explained the “newly defined Netco business” will comprise fixed network assets separated from TIM, offering connectivity to homes and businesses across Italy on an open-access wholesale basis through a mix of copper and fibre.
The investor group has also committed to support upgrades to the existing network to deliver fibre-based services in urban and rural areas, while decommissioning legacy copper technologies.
However, the sale has been controversial, with TIM’s largest shareholder Vivendi slamming the decision and subsequently launching legal proceedings against the operator.
Despite this, CPP added it expects the transaction to conclude in mid-2024.
James Bryce, MD, global head of infrastructure at CCP investments, said it was optimistic NetCo can represent the first of several infrastructure investments in Italy for the company.
Last week, CPP Investments issued a press release stating it will invest in Italy's digital infrastructure network:
Toronto, CANADA (March 08, 2024) – Canada Pension Plan Investment Board (CPP Investments), has entered into an agreement to join the Optics BidCo investor group, which is acquiring NetCo – the most extensive telecoms network in Italy – from Telecom Italia S.p.A. CPP Investments has committed to acquire a 17.5% interest in NetCo for up to €2.0 billion (C$2.9 billion), as part of a transaction which values the business at an enterprise value of approximately €18.8 billion (C$27.5 billion). The investor group, led by Kohlberg Kravis Roberts & Co. L.P. (KKR), includes a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), the Italian infrastructure fund F2i and the Ministry of Economy and Finance of the Italian Government.
The newly defined NetCo business will be primarily comprised of the fixed network assets being separated out from Telecom Italia S.p.A., offering connectivity to homes and businesses across the country on an open-access wholesale basis with a mix of copper and fiber-based technologies.
“NetCo will provide critical end-to-end data connectivity services that support the functioning of the Italian economy,” said James Bryce, Managing Director, Global Head of Infrastructure, CPP Investments. “Our investment alongside these key partners with a shared long-term vision will help deliver high-quality digital infrastructure across Italy as well as generating long-term risk-adjusted returns for the fund. We are optimistic that NetCo can represent the first of several infrastructure investments in Italy for CPP Investments.”
The investor group at NetCo will support the completion of an extensive upgrade to the existing network to deliver high quality and high capacity fiber-based services in urban and rural areas, decommissioning of legacy copper technologies, making improvements to IT functionality, and driving efficiencies in the business. The closing of the transaction is expected in the summer of 2024 subject to customary conditions.
CPP Investments is an active global infrastructure investor with 29 direct investments in 13 countries totalling C$51.8 billion as at December 31, 2023, with significant investments in digital infrastructure businesses, including Boldyn Networks (United States, UK and Italy), Cellnex (Pan-European) and V.Tal (Brazil).
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2023, the Fund totalled C$590.8 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Instagram or on X @CPPInvestments.
Alright, CPP Investments is taking a significant minority stake in Italy's NetCo, acquiring a 17.5% interest in the company for up to €2.0 billion (C$2.9 billion), as part of a transaction which values the business at an enterprise value of approximately €18.8 billion (C$27.5 billion).
In doing this transaction, CPP Investments joins the Optics BidCo investor group, an investor group, led by Kohlberg Kravis Roberts & Co. L.P. (KKR), and includes a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), the Italian infrastructure fund F2i and the Ministry of Economy and Finance of the Italian Government.
These are huge sums and for those of you wondering why is Canada's pension fund investing almost C$3 billion in an Italian telecom network and not in Canadian equities or infrastructure, read my last comment on why the federal government should leave our pension funds alone and focus its attention elsewhere.
Importantly, Italy and other governments around the world are privatizing assets, creating winning conditions to attract foreign investors, and this is the right course of action over the long run.
Our government is dithering which is why the productivity gap with the United States is widening to record levels. Now more than ever, we need to attract private investment or we risk seeing a permanent decline in Canadians' standard of living.
And notice it's powerhouse private equity firm KKR which is behind this latest deal to acquire NetCo.
KKR has been leading the charge in Italy for years, they know exactly how to navigate this complex space and having them and ADIA as a partner only solidifies CPP Investments' position.
Keep in mind, NetCo's operational focus will be on its fixed network assets, which are in the process of being spun off from Telecom Italia. It aims to offer nationwide connectivity to both residential and commercial spaces through an open-access wholesale model, utilizing a blend of copper and fiber technologies.
The digitization of the Italian economy is kicking into second gear and that's why this transaction represents a great long-term deal.
One hitch, back in November, Telecom Italia’s (TIM’s) largest shareholder Vivendi slammed the decision by the operator’s board to approve a sale of fixed network assets to KKR, vowing to use any legal means possible to challenge the move.
I'm not sure how this will play out but it can pose a risk to the deal.
Lastly, recall that last week I discussed why CPP Investments, AIMCo and Manulife IM will increase their commitment to Boldyn Networks to support its US growth.
Clearly digital infrastructure is a major theme at CPP Investments and other large pension funds and institutional investors.
They all continue to see strong tailwinds for the digital infrastructure sector with increased mobile and fixed data usage requiring considerable investment in communications infrastructure to enabling better connectivity.
And this sector will continue to grow despite a slowdown in the global economy so it's relatively recession-proof.
That's why Canada's pension fund invested $C2.9 billion to acquire a significant minority stake (17.5%) in Italy's largest telecom network.
Below, Pietro Labriola, Telecom Italia CEO spoke with Francine Lacqua of Bloomberg The Pulse (nice name) to discuss the KKR deal (fast forward to minute 43; November 2023).
Listen carefully to his comments, they need to pay down debt and make huge investments to remain competitive. It's the same story for most telecom companies around the world.
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