MILAN (Reuters) -Telecoms operator Tiscali and Linkem Retail, a unit of private broadband group Linkem, have agreed to merge in a deal that would create Italy's fifth largest fixed line telecoms operator, the two companies said on Thursday.
The move flags a push for consolidation in Italy's hyper-competitive telecoms sector, which is facing shrinking revenues and margins over the past decade.
It comes at a time when Italy is preparing to tap billions of euros of European Union recovery funds to boost broadband connectivity, and as its telecoms industry is in flux following a proposal last month by U.S. private equity giant KKR to take over former phone monopoly Telecom Italia (TIM).
As part of the planned deal, Linkem will receive 5.0975 Tiscali shares for each one euro of capital it holds in Linkem Retail. Upon completion, Linkem will become Tiscali's largest investor with a 62% stake, they said in a statement.
The deal, which is expected to be completed by the first half of next year, will have to be backed by Tiscali's minority shareholders at an extraordinary meeting to be held by March, the companies said.
The group would have 1.2 million retail clients in Italy.
A source close to the matter told Reuters on Thursday that the proposed merger with Tiscali was part of Linkem's wider plan to overhaul its operations.
As part of this plan, Linkem is looking for an investor to help fund plans to upgrade its network operations and boost 5G rollout, sources said earlier this month.
Splitting services from infrastructure assets is increasingly emerging as a way for telecoms operators to tackle issues that include shrinking revenues and heavy investments needed to upgrade network operations.
Equita SIM was Tiscali's adviser in the transaction. Linkem and Linkem Retails were advised by Banca Akros.
(Reporting by Giulio PiovaccariAdditional reporting by Elvira PollinaEditing by Frances Kerry)