The war has begun optical fiber e Enel is at the center of the new plan to give Italy an ultra-broadband network in step with that of other European countries. On the day he presented i positive semi-annual accounts and raised the estimates for 2016, the group led by Francesco Starace has achieved a fundamental asset: the purchase of Metroweb from F2i and the agreement for the merger into a single company with Open Fiber. The value of the operation is 814 million.
The decision was made official at the end of the Board meeting which approved the half-yearly report and gave the green light to the merger project with Metroweb Italia, the company that has invested the most in fiber and which is controlled by CDP (46,2%) and F2i ( 53,8%). The operation was presented by Starace in the conference call on Thursday afternoon on the half-yearly accounts. The steps are complex but everything will be completed, according to the intentions of the managers, between November and the end of the year. At stake is the plan for 250 cities connected by fiber to the homes (FTTH, Fiber to the home) and 3,7 billion of investment in the period 2016-2012 all addressed to areas A and B, those in competition. In five years, 9,5 million homes are expected to be connected, including 1,2 million already connected by Metroweb today. The operation, and this is a significant novelty, will be released from the replacement of the new meters because this would have cut off the most important cities where the distribution network is not owned by Enel but by local utilities (Acea in Rome, A2A in Milan and so on). But before it can fully deploy its potential, a complex series of corporate steps is expected.
“With this operation we are taking another decisive step forward in the creation of an important infrastructure for the country. The acquisition of Metroweb – commented Francesco Starace – makes it possible to accelerate our plan for the development of ultra-broadband, as well as to expand the cabling perimeter to include the most important Italian cities and at the same time reduce the risk profile of this initiative thanks to the partnership with Cdp and, hopefully, F2i”.
THE INTEGRATION PROCESS
They are indeed several steps are involved. It starts with thecapital increase of Enel open fiber (Eof) reserved for Enel and CDP Equity (the safe of Cassa Depositi which already holds 46,2% of Metroweb Italia) to provide the company with the resources necessary to acquire 100% of Metroweb. The cost of the operation, valued at enterprise value, is 814 million, divided equally between Enel and CDP. Of this figure, 714 million is the cost of the majority acquisition while the other 100 million will be used to pay the minority shares currently held by Swisscom (Fastweb shareholder who has chosen to form an alliance with Telecom Italia) e Aster (Municipality of Genoa), respectively in Metroweb Milano and Metroweb Genova. All the subsidiaries will then be merged by incorporation into the parent company.
However, after selling its share, F2i may choose to re-enter the operation: the option may be exercised until 15 October and will affect 30% of the share capital. F2i therefore has some time to decide but it is reasonable to expect it to stay: for this reason Enel and Cdp have already planned the establishment of a fifty-fifty holding company which will own 70% of the new company born from the merger which will it still has a name but can conventionally be called New Eof.
At this point the first part of the operation will be concluded. The timing provides for the definition of the investment contract by 15 September, then all the corporate transitions, then the internal reorganization of Metroweb which will incorporate all its subsidiaries, finally the Eof-Metroweb merger by November. The actual development phase starts at the end of the year.
GOVERNANCE
The agreement envisages that for the first 5 years Enel will appoint the managing director and Cdp Equity the non-operating chairman. After this period, the parties are reversed and Cdp will be given the indication of the CEO. Discounted the guide of Thomas Pompeii, currently at Eof and architect of the whole operation.
GOODBYE COPPER NETWORK
The agreement reached by Enel, Cdp and Metroweb marks a point of no return. Meanwhile, why the NEof eggs starts from 1,2 million homes already connected while the competitor Telecom-Fastweb it is still in its infancy. But above all because the project implementation times are accelerated: the the investment plan was in fact increased from the initial 2,5 billion to the current 3,7 and will aim straight at the most commercially attractive cities - the number fluctuates between 40 and 50 large cities including Rome - where, therefore, more competing networks will be built. Eof has already started laying the fiber in 4 cities: Perugia is ahead, followed by Catania, Bari and Venice but the first 10 cities must now be added to Milan, Turin and Genoa where Metroweb is strong and already present.
The important aspect of the operation is that the New Eof will use the distribution network to lay the fiber at reduced costs – it expects to be able to offer operators connections at an average cost of 303 euros – and has already published the regulation to allow all operators to use the new available fiber under the same conditions as Eof. It will therefore be a network open to all and the existing need to connect for the last mile to Telecom "cabinets" will no longer exist. Which signals the farewell to the copper network. There estimated Ebitda to 2021 is 300 million. Agreements are already signed with Vodafone and Wind, contacts with Sky, Mediaset and Rai. But above all contacts are underway with Xavier Niel of Iliad: The 300 million Ebitda of Enel Open Fiber estimated in the plan to 2021, Francesco Starace specified in a conference call, "are based on a plan that only looks at customers brought about by concluded commercial agreements, such as Vodafone and Wind, and does not take account of Iliad and the other new players who are entering Italy and with whom we are currently having discussions".
INVESTMENTS AND DEBTS
The investment program agreed with CDP provides that 30% will be financed in additional equity with an additional cost close to 600 million while 70% should be in debt which will also be covered with the revenues that will arrive in the meantime. Since the new Eof is 50% controlled, however, the debt will not be consolidated and therefore will not further load Enel's accounts.
POSITIVE HALF-YEAR REPORT AND INCREASING ESTIMATES
Enel presented one of the most eagerly awaited half-year reports of the day. Six good months for the Italian energy giant which improves both ordinary profit (+8,6%) and EBITDA (+1,2%). The company has also raised its targets for 2016. Starace is satisfied with the fact that “i markets in Italy and Latin America are showing particularly satisfactory progress” while the disposal plan continues which makes the company lighter and better distributed. After yesterday's green light from the EU to Enel for the sale of Slovenske Elektrarne, Starace can nonetheless announce that it has finalized "4 billion sales, or 70% of the five-year target".
The first half ended with revenues down by 9,3% to 34,15 billion, attributable to lower revenues from electricity sales in mature markets, lower trading activities, the negative exchange rate effect and the lower incidence of extraordinary matches. The only extraordinary element was the capital gain realized on the sale of Hydro Dolomiti Enel equal to 124 million (recalculated in the second quarter of 2016 following the definition of the price adjustment).
Net financial debt rose from 37,545 billion at the end of 2015 to 38,13 billion (+1,6%) due to higher investments in the period and the payment of dividends.
In light of these results, the electric group also has revised upwards the 2016 targets: ordinary EBITDA expected at 15 billion from 14,7 billion previously, ordinary net income at 3,2 billion from 3,1 billion, operating cash flow/net financial debt from about 23% to about 25%.
