By Giuseppe Fonte and Elvira Pollina
ROME (Reuters) -Italy wants to control Telecom Italia (MI:TLIT)'s (TIM) key strategic assets in any takeover, Industry Minister Giancarlo Giorgetti said on Wednesday, in a clear signal to U.S. private equity group KKR.
TIM has received a non-binding 10.8 billion euro ($12.27 billion) approach from the New-York based fund which aim to take Italy's biggest telecoms group private.
The former monopoly owns Italy's largest telecoms infrastructure and Rome has the power to block any deal involving assets deemed to be of national interest.
KKR's takeover proposal is conditional on backing by TIM's board and the Italian government, which owns a 10% stake through Treasury-owned state lender Cassa Depositi e Prestiti (CDP).
TIM's biggest shareholder Vivendi (PA:VIV) has said KKR's bid does not reflect TIM's value, while CDP has called on it to revamp a project to merge its network assets with those of state-backed rival Open Fiber.
Asked at a press briefing whether KKR's bid might jeopardise such a plan, Giorgetti said the government "respects the market but any takeover bid must take into account a framework within which the state cannot relinquish control".
KKR, which owns a 37.5% stake in TIM last-mile landline unit FiberCop, declined to comment.
KKR's proposal also entails the separation of TIM's network assets whose oversight would be entrusted to CDP.
Italy's Treasury is looking at ways to merge TIM's fixed network assets with Open Fiber's to create a wholesale-only unified network operator under the control of CDP, a source close to the matter said.
Debt-laden TIM has been under pressure for years due to fierce domestic price competition. Its strained finances have hampered investments to upgrade its network in line with Italy's digital plans.
However, there are contrasting positions within government, with Innovation Minister Vittorio Colao, a former CEO of British mobile giant Vodafone (LON:VOD) of the view that competition is the best way to promote ultra fast fibre rollout.
TIM's general manager Pietro Labriola, who has been tipped as the frontrunner to become its new CEO, is drafting a business plan on a standalone basis, which would provide a benchmark for the board to assess KKR's offer.
Labriola is considering a range of options, including a split of TIM's network operations from its services business through a proportional demerger, in a way that services and network assets would carry a portion of the company's debt and equity, a second source close to the matter said.
TIM declined to comment.
($1 = 0.8802 euros)