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KKR has expressed reservations about a plan by Telecom Italia (BIT:TLIT) (TIM) to merge its network, which is partly owned by the U.S. fund, with that of state-backed rival Open Fiber, two sources close to the matter said.

KKR in 2020 spent 1.8 billion euros ($1.9 billion) for a 37.5% stake in TIM’s last-mile grid unit FiberCop, and has the power to veto any accord that is not value-accretive for FiberCop.

FiberCop, holding cables that run from street cabinet to users’ homes, would be included in any combined network entity with Open Fiber.

TIM last month started formal talks with state investor CDP over the single network project, but an initial April 30 deadline has passed without a preliminary agreement. CDP owns 10% of TIM and 60% of Open Fiber.

TIM CEO Pietro Labriola last week said he was confident that an accord was within reach.

Complicating discussions, the sources said KKR had asked for guarantees over the economic returns of any single network deal before giving its backing.

KKR and TIM declined to comment.

After rebuffing a takeover approach from KKR, TIM is pushing ahead with plans to split its domestic network from its service businesses.

Under the scheme, TIM would relinquish control of Italy’s biggest telecoms network in favour of state lender CDP, making the state lender the main shareholder in any network combination between TIM and Open Fiber.

KKR is concerned about the impact of antitrust remedies that EU competition authorities could impose to clear a tie-up, potentially reducing expected returns, the sources said.

Rome sees as favourable a deal that would help to upgrade an infrastructure deemed strategic for the country, avoiding a costly duplication of investments.

But the sources said KKR thought that the project did not appear consistent with an EU-funded scheme to boost fibre optic rollout across Italy, or with TIM and Open Fiber standalone investment plans.

TIM and Open Fiber compete in government tenders to secure 3.8 billion euros ($4 billion) in EU recovery funds to ensure the whole of Italy can have 1 gigabyte per second fixed Internet connectivity by 2026.

KKR has also argued that CDP needs to inject cash into any combined network entity in order to have control, one of the sources said. CDP declined to comment.

In a sign of the difficulties that KKR could pose, the U.S. fund has forced TIM to review the terms of a separate agreement that would give Open Fiber access to TIM’s infrastructure and help the rival complete fibre optic rollout plans in remote areas, another source said.($1 = 0.9514 euros)

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