Telecom Italia's 23 Data Centers Could Fetch $1.1B in Planned IPO

Daniele Lepido (Bloomberg) -- Telecom Italia SpA plans to spin off its 23 data centers in Italy and list them on the stock market in a deal that could value the business at around 1 billion euros ($1.1 billion).

Chief Executive Officer Luigi Gubitosi wants to create a separate unit for the facilities in the first half of next year and bring in financial investors to improve its growth prospects ahead of the initial public offering, according to people familiar with the matter. Telecom Italia would keep overall control of the new unit, they said.

The move shows Gubitosi is pulling every lever to cut the former monopoly’s 29 billion-euro ($32 billion) debt pile -- one of the biggest in the European telecommunications industry -- and share the burden of future infrastructure spending.

It follows a truce in a yearlong board battle between two of Telecom Italia’s biggest shareholders that had limited his ability to press ahead with reforms.

Telecom Italia will be following other phone companies in seeking new investors for their data centers to help them compete with a new generation of huge, efficient server farms being rolled out by U.S. tech giants such as Microsoft Corp. and Alphabet Inc.’s Google.

Related:Telecom Italia Wants Out of the Data Center Business

The company is valuing the data centers at between 12 times to 18 times their earnings before interest, tax, depreciation and amortization, said the people, who asked not to be identified as the plans aren’t public. The business could be worth around 1 billion euros, based on the value of recent similar deals, they added. Telefonica SA agreed in May to sell 11 data centers to Asterion Industrial Partners for 550 million euros.

A spokesman for Telecom Italia declined to comment.

Telecom Italia shares reversed a decline on Tuesday after the Bloomberg report, closing up 0.4%. They rose another 0.5% at the open on Wednesday in Milan.

Record Lows

The spinoff is part of Gubitosi’s wider effort to drag Telecom Italia out of a steady decline that pushed the stock to record lows this year. He’s also seeking a merger of its biggest asset -- Italy’s dominant fixed-line network -- with rival Open Fiber SpA.

The company already moved to limit the financial hit from 5G wireless network investment by collaborating with industry rival Vodafone Group Plc on the rollout.

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Gubitosi’s data center plan would replicate what Telecom Italia did with its wireless towers, hiving them off into a new unit called Inwit and listing it on the Milan Stock Exchange in June 2015. Since then, Inwit shares have more than doubled.

The company wants to maintain control over the new data center business and will keep the operations in Italy for security reasons, the people said. European telecom companies see their ability to keep sensitive client information inside national borders as a competitive advantage over rival services offered by the U.S. cloud computing giants.