KKR offers a 33 billion euro buyout offer for Telecom Italia

KKR has launched an offer of more than € 33 billion to take Telecom Italia private in what will be one of the largest private equity acquisitions of a European company in history.

In a statement issued after a board meeting on Sunday, Telecom Italia said that the US acquisition fund had offered 0.505 euros per share in cash – a premium of 45 percent on the company’s closing price on Friday which would give the company an equity value of 10.7 billion euros. It has about 22.5 billion euros in net debt.

Telecom Italia said that the KKR offer was intended to be friendly, in that it had to be approved by the company̵[ads1]7;s board members, and was conditional on a four-week period of due diligence and approval from the Italian government, which has a veto. over a takeover of the group.

The board gave no indication as to whether it would approve the agreement.

The KKR offer also drew interest from rival funds, with CVC and Advent “open” for discussions with stakeholders, according to a CVC spokesman in Milan.

Shares of Telecom Italia rose 22 percent to € 0.42 on Monday morning.

The offer to the Italian group, whose market value had fallen to 7.5 billion euros before it went public, is the latest sign of private equity interests in the European telecom sector. The funds are looking to break up businesses, separate the networks from the consumer businesses, to realize values ​​or improve the performance of the companies.

KKR already has a 37.5 percent ownership interest in Telecom Italy’s “last mile” network, but has provided a complete offer for the entire company.

It is the last twist in the history of Telecom Italia, which was the subject of a bitter tug-of-war over control four years ago between the French investor Vivendi and the American activist fund Elliott Management. There were interrupted attempts by Telefónica in Spain and AT&T in the US to buy the business. It has struggled in recent quarters and issued two earnings warnings over the course of three months this year, weakening its position.

Prior to the news of the KKR offer, shares had fallen by a quarter since June and almost two-thirds since 2018, putting pressure on Luigi Gubitosi, the Italian founding figure appointed CEO that year, to turn the company around. A board meeting was scheduled for November 26 to discuss a potential management overhaul.

Vivendi denied that it was in talks with KKR or CVC – as it was reported – or any other institution about a potential move for Telecom Italia. The French company is Telecom Italy’s largest shareholder with a stake of 24 percent, followed by the state lender Cassa Depositi e Prestiti, which owns almost 10 percent.

“Vivendi is a long-term shareholder and we want to work with the government and other institutions to get Telecom Italia back on track,” the company said. – We are not happy with the performance. . . The important thing is to stop this ship from going down. ”

Telecom Italia was Europe’s most valuable telecom company in the 1990s, but has gone from crisis to crisis in the last two decades. It is a politically important company, and the government has a “golden power” to block the acquisition or sale of assets that are not considered to be in the national interest.

The Prime Minister’s Office and Cassa Depositi e Prestiti declined to comment on whether Rome planned to exercise its veto power over foreign takeovers of strategic assets.

Italy’s finance minister said the interest in Telecom Italia “was good news for the country” and that the government will “evaluate its privileges carefully”.

“The government’s goal is to ensure that these projects are compatible with the rapid completion of the ultra-wide network as outlined in Italy’s EU recovery plan,” the finance ministry added.

Officials in Rome said the government would follow developments closely and would not give up oversight of assets it considered “strategic”, such as Telecom Italy’s primary network and high-density sparkle cables.

According to several people in Rome, KKR would be willing to split the company in two and hand over the controlling ownership of Telecom Italia’s network to a state-controlled entity such as Cassa Depositi e Prestiti. Such a move would conflict with other acquisitions of telecoms, including Macquarie’s acquisition of TDC in Denmark, where funds have targeted ownership of valuable network resources when they want to split up telecom businesses.

Rome is not opposed to such a project, but will “look at more options” in the coming weeks, the people said.

They said that KKR had asked Telecom Italia for a response to the offer, which was first reported by Corriere della Sera, within four weeks.

KKR is one of the most active investors in European telecoms. It bought a minority stake in Telecom Italy’s secondary network for 1.8 billion euros last year through its infrastructure arm and was part of a consortium of private equity groups that took the Spanish telecom operator MasMovil privately in a deal worth 5 billion euros last year. It acquired Hyperoptic, a British fiber company, in 2019.

The American acquisition group previously approached the Dutch telecom provider KPN with a takeover bid, which was rejected this year.

Further reporting by Sarah White in Paris and Emma Agyemang in London

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