By Elvira Pollina and Giuseppe Fonte
MILAN (Reuters) - KKR is open to leaving Italy in full control of Telecom Italia (BIT:TLIT)'s (TIM) submarine cable unit as part of the U.S. fund's efforts to secure government blessing to take over the phone group's grid, two sources close to the matter said.
The future of Sparkle, TIM's submarine unit, is one of the topics that government officials are discussing with KKR representatives in talks over the New York-based fund's approach for Netco, a venture comprising both TIM's fixed domestic access grid and Sparkle.
In June TIM granted the U.S. investment firm a period of exclusive negotiations to secure a binding deal by Sept. 30.
Sparkle was valued at up to 1.2 billion euros ($1.3 billion) in KKR's preliminary bid for Netco, for which the U.S. fund offered some 23 billion euros when including some variable items, people close to the matter said at the time.
An international wholesale telecoms operator, Sparkle manages fibre cables that stretch over 600,000 kilometres. Its submarine network transmits information between countries in Europe, the Mediterranean and the Americas.
The government deems the venture as of strategic importance and Italian officials had previously signalled they were in favour of bringing it in state hands.
KKR has little interest in the submarine cable unit as it is focused on TIM's domestic network, stretching from switching centres to the homes of customers, according to the sources.
TIM, which reports quarterly earnings on Wednesday, and KKR both declined to comment.
WHEN SEPTEMBER COMES
KKR is currently carrying out due diligence and working to secure financing for a binding bid, separate sources said. No offer is expected before September, according to the people.
Any deal involving TIM's network requires approval from the Italian government, which can use its special vetting powers to rein in or even block bids for strategic assets.
In its non-binding bid, KKR also left the door open to a government-backed entity taking a stake of up to 30% in Netco, sources have previously said.
Rome is weighing on which terms it could join KKR's bid and maintain oversight of the asset, government officials said, confirming this remained a priority for the government.
Options being discussed include Italy's Treasury, together with state-backed infrastructure fund F2i and possibly Italian state lender CDP, all becoming minority shareholders in the grid company, the same sources said. ($1 = 0.9121 euros)