© Reuters. File photo: The TIM brand logo of Telecom Italia can be seen on a building in Rome, Italy on April 9, 2016. REUTERS/Alessandro Bianchi/File Photo
Valentina Za and Elvira Polina
Milan (Reuters)-Investor Telecom Italia (MI:) Cheers on Monday the US fund KKR’s proposal to acquire Italy’s debt-laden former telephone monopoly for 33 billion euros (37 billion US dollars), which will be the largest private equity acquisition in Europe’s history.
This move coincides with the raging war of the board of directors of Telecom Italia (TIM), which has been in deep crisis for many years, but is crucial to the government’s efforts to expand broadband connections because it owns the country’s main network.
KKR’s quotation depends on government support and the results of a four-week analysis. TIM’s valuation is 10.8 billion euros, excluding 22.5 billion net debt, which is 45.7% higher than Friday’s closing price of common stocks.
The share price rose 32% in afternoon trading to 0.4585 euros per share, while the quoted “indicative” price was 0.505 euros, and more than 8% of TIM’s capital changed hands.
However, TIM’s bond yields soared, and Standard & Poor’s further downgraded to below investment grade on Friday. Investors are worried that debt may increase further.
Successive transactions swelled TIM’s total debt to 30.5 billion euros, paralyzing the company that was once the crown jewel of government assets before the unfortunate privatization in 1997.
Refinitiv’s data shows that in 2021, global private equity-backed M&A transactions have reached US$1 trillion, which is 53% higher than the historical record of US$663 billion in 2007.
KKR’s offer, the New York-based fund has described to TIM as “friendly”, which will cause a huge loss of 24% of the company’s top investor Vivendi (OTC:), with an average cost of 1.07 euros per share.
A person close to the French media group said that Vivendi believes that KKR’s offer does not pay enough attention to TIM. KKR’s goal is a 51% acceptance threshold, so the offer does not require Vivendi’s support.
TIM’s board of directors did not comment on the proposal.
Vivendi has been pushing for the replacement of TIM CEO Luigi Gubitosi, who failed to prevent revenue loss, resulting in two profit warnings issued within three months, and the group’s market value fell by nearly 40% during his three-year tenure.
Italy has special powers to block foreign bids for strategic assets, and said it will decide whether to use these assets according to the plan of TIM’s fixed-line business.
HSBC said: “The path of the official quotation may be uncertain or uncertain, but we believe that the quotation is clear and credible.”
In addition to protecting the jobs of 42,500 local employees, Rome also wants to ensure that the network’s plans are aligned with the efforts to deploy the multi-billion-euro EU Recovery Fund to roll out ultra-high-speed broadband in Italy—the EU’s digital connection is behind.
KKR hopes to privatize TIM, which analysts say will make the restructuring easier. Its quotations are for common stocks and savings stocks.
“An experienced private capital provider like KKR may be more suitable to support TIM’s turnaround,” UBS said.
KKR is working with Citi, JPMorgan Chase (NYSE:) and Morgan Stanley (New York Stock Exchange stock code:) This transaction has a long history in this field.
In April, it established Open Dutch Fiber, an optical fiber wholesale company, and will acquire it in 2020 with rivals Cinven and Providence, Spain’s fourth largest telephone group MasMovil.
According to sources, KKR will operate TIM’s fixed-line business as a government-regulated asset in accordance with the model of the power grid Terna or natural gas power grid Snam.
KKR already holds 37.5% of FiberCop, which holds TIM’s last mile network from the street to people’s homes.
Gubitosi has been working hard to restore a project to merge the network assets of TIM with the network assets of rival Open Fiber, which is a competitor for which national investor CDP will gain control. CDP is also the second largest investor in TIM, owning 10% of the shares.
The single network plan was shelved under the leadership of Prime Minister Mario Draghi, but a person familiar with the matter said that the Ministry of Finance is still studying the possibility of a merger between TIM’s fixed network and Open Fiber under the control of CDP.
(1 USD = 0.8872 Euro)