Metroweb, the dark fiber targeted by Enel

On 7 May the Italian State-controlled utility company Enel has reportedly made an offer for Metroweb, a Milan-based fiber-optic network company. From Enel’s point of view, the acquisition of Metroweb would represent a significant step in its plan to to roll out a widespread high-speed Internet network in Italy.

 What is Metroweb?

 Founded in 1997 and headquartered in Milan, the company owns and runs a large fiber-optic network, with approximately 7200 km of cables and 3200 km of civil infrastructure in Milan and its suburbs. The company is also expanding in other cities since it is building fiber-optic networks in Turin, Genoa and Bologna and has plans to replicate its business model in at least 30 other highly populated cities in Italy.

What the company considers as its competitive advantage are its independence and its lack of vertical integration. Indeed, other telecommunications companies which have been developing and building their own ultra-broadband networks (such as Telecom Italia and Vodafone Italia) also provide data-transmission and connectivity services both to businesses and consumers.

On the contrary, as Metroweb operates solely as a dark-fiber operator, its core business involves exclusively the leasing of its infrastructure to the aforementioned TLCs operators (through the concession of a IRU, Indeafiseable Right of Use).  According to the company management, this business model is not only leaner, but it also avoids any potential conflict of interest and, above all, leads to market efficiency by fostering competition among the potential bidders for the use of the infrastructure.

Metroweb Business Model

 The Government plan and the role of Enel

 Since the beginning of his Government, the Italian Prime Minister Matteo Renzi has considered the realization of an up-to-date broadband telecommunications infrastructure as a priority for his agenda. Indeed, Italy is now oriented to reduce the long-enduring broadband gap with other advanced EU Economies (as shown in the chart below).

 In addition, Italy will have also to comply with the EU’s digital agenda which  requires member states to ensure by 2020 that all households have access to internet connections faster than 30 megabits per second and half have access to hyper-fast 100-megabit connections.


Broadband take-up among European households (Source, Analysis Mason Research)

Consistently with these ambitious objectives, on 7 April Matteo Renzi officially presented Enel’s €2.5 billion plan to develop a fiber-optic broadband infrastructure in 224 Italian cities and towns through the newco Enel Open Fiber.

Just like Metroweb, Enel will not offer telecoms services itself, but only the concession of IRUs to other TLCs operators. What makes this plan really attractive is the possibility to speed up the pace of the fiber roll-out with Enel developing this infrastructure alongside its existing power stations and thus benefiting from its already widespread presence in Italy.

Italian PM Matteo Renzi presenting Enel ‘s plan

The transaction

 Under these circumstances, it is easy to notice the strategic importance of the acquisition of Metroweb by Enel with possible huge synergies in terms of both skills and assets.

 In more detail, the transaction would involve the sale of the 53,8% stake in Metroweb owned by Fondo Italiano per le Infrastrutture (F2i) and valued approximately € 400 m. This would lead to a total equity value of approximately € 740 m., an enterprise value of roughly € 900 m. (considering a Net Financial Position of around € 150m.) and  thus implying an EV/Ebitda transaction multiple of 18.5x, far above the average EV/Ebitda trading multiple for TLCs companies of 7x (or 16.2x if Ebitda – Capex is considered, source: Kepler Cheuvreux Research).

Calculation of the EV/Ebitda multiple implied by the transaction, values reported in € m.

 But can this transaction value be justified only by the expected assets and skills synergies? This is of course a critical issue that Enel’s top management team should justify to the shareholders and of course to the market (Enel is listed in the Italian Stock Exchange, Borsa Italiana).

 What about Telecom Italia?

 Given these circumstances, there is definitively one big player that seems to be left out: Telecom Italia.

 Earlier in this month, the Italian Telco seemed to be in advanced talks for the acquisition of Metroweb in exchange for a stake in Telecom Italia Sparkle, its international wholesale unit, but the potential intervention of Enel could change everything.

 And what now?

Next week can be crucial for the future of Metroweb with Enel and Telecom Italia boards meeting respectively on 9 and 13 May to present their Q1 results.

However, given also the political sensitivity of these facts,  the situation is far from being easy to predict and undoubtedly new elements will arise  and consequently result in  even more complex scenarios.

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