Business

KKR spends 12 billion dollars to take Telecom Italia private




Telecom Italy’s logo for the TIM brand is seen on a building in Rome, Italy, April 9, 2016. REUTERS / Alessandro Bianchi / File image

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  • The board assesses the KKR proposal in a separate Sunday meeting
  • The goal is to free up the fixed network, operate it as a state-regulated asset
  • Concrete TIM manager is pushing to revive the plan with one network
  • Rival CVC, Advent also open to study solution for TIM
  • The government says to follow the plans for TIM’s fixed line

MILAN, November 21 (Reuters) – Telecom Italia (TIM) (TLIT.MI) has received an approach of 10.8 billion euros ($ 12 billion) from the US fund KKR (KKR.N) with a view to taking Italy largest telephone group privately, the company said on Sunday.

KKR’s move comes while TIM’s CEO Luigi Gubitosi is fighting to survive after being exposed to fire from top investor Vivendi (VIV.PA) after two profit warnings in three months.

TIM said that KKR had set an indicative price of 0.505 euros for its possible buyout offer – a premium of 45.7% at the closing price of the ordinary shares on Friday. KKR would also offer the same price for TIM’s savings shares.

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The TIM board, chaired by former Bank of Italy official Salvatore Rossi, met for several hours on Sunday afternoon, but in a brief statement gave no indication as to whether it would support the approach. It noted that KKR had described the action as “friendly” and aimed to win support from the company and the government.

Italy’s finance minister said foreign interest in Italian companies was “positive news for the country” and that the market would consider how valid KKR’s plan is if it were to materialize.

The government will follow developments closely with a focus on plans for TIM’s fixed assets, which will be the key to deciding whether to use the veto.

Rome has special anti-takeover powers to shield companies that are considered of strategic importance from foreign bidders.

A new owner will also have to take over TIM’s gross debt of 29 billion euros.

CARVE OUT

Gubitosi joined KKR last year in a 1.8 billion euro deal that gave the New York-based fund a 37.5% stake in FiberCop, the unit that maintains TIM’s last mile network that connects street cabinets to people’s homes.

KKR’s plan would see TIM separate its fixed network to be operated as a state-regulated asset according to the model used by the energy network company Terna (TRN.MI) or the gas network company Snam (SRG.MI), two sources close to the case said earlier Sunday .

The government wants all plans for TIM’s network to be in line with the goal of quickly completing broadband development throughout Italy, supported by sufficient investment and protecting jobs, the Ministry of Finance said in its statement.

Gubitosi has begun looking at ways to squeeze money out of TIM’s assets, and is particularly looking at a plan to merge TIM’s landline network – its most valued asset – with fiber-optic rival Open Fiber.

Sponsored by the previous government, the project had stalled under Prime Minister Mario Draghi.

Rome, which is preparing to withdraw billions of euros from the EU’s recycling funds to increase its broadband connection in Italy, is aware of the need to find a way to support the former telecommunications monopoly and protect its 42,500 domestic workers.

PRICE “TOO LOW”

Vivendi, which is pushing to replace Gubitosi, believes KKR’s offer does not value TIM sufficiently, said a person close to the French media group.

Vivendi, which is facing a huge capital loss on its 24% TIM stake after paying an average of € 1,071 per share, is still ready to work with the Italian authorities and institutions for TIM’s long-term success, a spokesman said.

Vivendi sees Gubitosi as a short-term solution for TIM, people close to the case have said. One person said on Sunday that KKR’s plan could buy Gubitosi for a few more months. read more

Private equity firms CVC and Advent have also studied possible plans for TIM, in collaboration with former TIM CEO Marco Patuano, now senior adviser to Nomura (7131.T) in Italy.

A spokesman for the two funds said they were open to working with all stakeholders on a solution to strengthen TIM, and denied any contact with Vivendi.

To monitor a strategic asset such as the fixed network, the state investor CDP has taken a stake of 9.8% and become TIM’s second largest investor after Vivendi.

TIM’s fixed network is also an important resource that supports the debt burden, which was further cut below the investment grade level by the credit rating agency S&P on Friday. read more

TIM’s revenues have shrunk by a fifth in the last five years hit by aggressive competition at home from rivals such as Iliad, Vodafone (VOD.L), Wind Tre and Fastweb.

($ 1 = 0.8859 euros)

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Further reporting by Agnieszka Flak in Milan and Giuseppe Fonte in Rome; editing by Andrew Heavens, David Evans and Keith Weir

Our standards: Thomson Reuters Trust Principles.



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