Macquarie Asset Management (MAM) and CDP Equity (Cassa Depositi e Prestiti) today received approval from the European Commission, part of the European Union, to acquire a combined 50% stake in Open Fiber SpA, a wholesale operator of fiber optic networks in Italy, from Enel SpA, an Italian utility company. Specifically, this transaction will increase CDP’s stake in Open Fiber by 10%, from 50% to 60%, making it the controlling shareholder, while Macquarie will acquire the remaining 40% of Open Fiber. Notably, the Italian State controls CDP.

Overall, Enel SpA is receiving €2.65bn in consideration for its 50% stake in Open Fiber. Particularly, Macquarie is acquiring its 40% stake for €2.12bn, while CDP is purchasing its incremental 10% stake for €530m. Therefore, Open Fiber’s total equity is being valued at €5.3bn, while the company’s enterprise value equates to €7.1bn.

Open Fiber – Macquarie and CDP Replace Enel

Open Fiber was formed in 2015 by Enel SpA, as Enel Open Fiber (EOF), to provide wholesale fiber-to-the-home (FTTH) services. Subsequently, in December 2016, Open Fiber completed the acquisition of Metroweb, a fiber network operator, for €714m, implying a whole-company enterprise value for Metroweb of €814m. As part of the acquisition, Cassa Depositi e Prestiti (CDP) became a 50% shareholder in Open Fiber, alongside Enel.

Through the enlarged Open Fiber, Enel and CDP are deploying fiber-to-the-home (FTTH) networks across Italy. Particularly, the company operates under an open access wholesale fiber network model, offering capacity to third-party telecommunications operators and internet service providers (ISPs). For example, Open Fiber has signed wholesale agreements with Vodafone Italia, Wind Tre, Sky Italia, and Iliad Italia. At the same time, Open Fiber has a network sharing agreement in-place with Fastweb.

Fiber Deployment and Targets

Presently, Open Fiber’s network passes 12+ million households with fiber infrastructure. Geographically, these passings span 180+ urban centers and 2.3k+ rural municipalities across Italy. Separately, Vodafone (a customer) states that as of June 30, 2021, it has access to 6.5 million “marketable homes passed” through Open Fiber’s network.

By 2023, Open Fiber plans to pass 19 million households with fiber-to-the-home (FTTH), equivalent to ~75% household coverage in Italy. Additionally, the company has set a target to attain 7 million customers.

Merger Between Open Fiber and Telecom Italia – Single Network

As part of the European Commission’s assessment of Macquarie and CDP’s 50% stake purchase in Open Fiber, the commission also assessed the “risks of coordination between Open Fiber and TIM” (Telecom Italia), particularly its fixed broadband business. To this end, the European Commission concluded that the “possible anticompetitive concerns are not specific to the proposed transaction”.

The European Commission’s review of a potential merger between Open Fiber and Telecom Italia’s fixed broadband assets and/or FiberCop (see below) highlights the potential to create a fixed ‘single network’ in Italy.

Single Network

To-date various permutations have been touted as to how Open Fiber and Telecom Italia could combine their fixed broadband assets. Specifically, the two most prominent alternatives are as follows:

  • AccessCo: merge the fixed access network (i.e., pre-cabinet) of Telecom Italia with Open Fiber
  • FiberCop: merge Open Fiber with FiberCop, a vehicle controlled by Telecom Italia (58% stake). FiberCop owns Telecom Italia’s secondary network (i.e., copper and fiber) which runs from roadside cabinets to customers’ homes

Rationale

Open Fiber’s fiber-to-the-home (FTTH) deployments represent a competitive threat to Telecom Italia’s fixed broadband business, which relies significantly on legacy copper infrastructure. Indeed, this is the case because Open Fiber is overbuilding Telecom Italia’s footprint with its open access wholesale fiber network. Additionally, meaningful synergies would accrue through a merger of both businesses, as duplicative fiber roll-outs could be eliminated.

Shareholders

As the 60% controlling shareholder of Open Fiber, the Italian State-backed CDP has significant influence over any combination with Telecom Italia’s fixed broadband assets. Moreover, CDP owns 10% of Telecom Italia and is also a board member – furthering its influence.

At the same time, the shareholder base of Open Fiber and Telecom Italia’s FiberCop both include return-focused private equity firms:

  • Open Fiber: Macquarie will own a 40% stake
  • FiberCop: KKR Infrastructure owns a 37.5% stake

Overall, Open Fiber’s recapitalization, via Macquarie and CDP purchasing Enel’s 50% stake, could be the impetus to strike a merger with Telecom Italia’s fixed broadband assets and/or FiberCop.

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