KKR makes €33bn buyout offer for Telecom Italia - Financial Times

KKR has launched a more than €33bn offer to take Telecom Italia private in what would be one of the largest private equity buyouts of a European company in history.

In a statement issued after a board meeting on Sunday, Telecom Italia said the US buyout fund had offered €0.505 a share in cash — a 45 per cent premium on the company’s closing price on Friday that would give the company an equity value of €10.7bn. It has roughly €22.5bn of net debt.

Telecom Italia said the KKR offer was intended to be friendly, in that it would have to be approved by the company’s board members, and was conditional on a four-week period of due diligence and the approval of the Italian government, which has veto power over a takeover of the group.

The board gave no indication over whether it would approve the deal.

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

Shares in Telecom Italia were up 22 per cent to €0.42 on Monday morning.

The offer for the Italian group, whose market value had dwindled to €7.5bn before it became public, is the latest sign of private equity interest in the European telecoms sector. Funds are looking to break up businesses, separating the networks from the consumer businesses, to realise value or to improve the performance of the companies.

KKR already holds a 37.5 per cent stake in Telecom Italia’s “last mile” network but has made a full offer for the entire company.

It is the latest twist in the history of Telecom Italia which was the subject of a bitter tug of war for control four years ago between French investor Vivendi and US activist fund Elliott Management. That followed aborted attempts by Telefónica of Spain and AT&T of the US to buy the business. It has struggled in recent quarters and issued two profit warnings in the space of three months this year weakening its position.

Before news of the KKR offer its shares had declined by a quarter since June and almost two-thirds since 2018, piling pressure on Luigi Gubitosi, the Italian establishment figure appointed chief executive that year, to turn the company round. A board meeting had been planned for November 26 to discuss a potential management overhaul.

Vivendi denied it was in talks with KKR or CVC — as had been reported — or any other institution over a potential move for Telecom Italia. The French company is Telecom Italia’s largest shareholder with a 24 per cent stake followed by state lender Cassa Depositi e Prestiti, which owns almost 10 per cent.

“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’re not happy with the performance . . . The important thing is to stop this ship from going down.”

Telecom Italia was Europe’s most valuable telecoms company in the 1990s but has lurched from crisis to crisis over the past two decades. It is a politically important company and the government has a “golden power” to block takeovers or asset sales not deemed 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 powers on foreign takeovers of strategic assets.

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

“The government’s objective is to ensure these projects are compatible with the swift completion of the ultrabroad network as outlined in Italy’s EU recovery plan,” the Treasury added.

Officials in Rome said the government would follow the developments closely and that it would not give up its oversight of assets it considers “strategic” such as Telecom Italia’s primary network and its Sparkle high-density cables.

According to several people in Rome, KKR would be willing to split the company in two and leave the controlling stake of Telecom Italia’s network to a state-controlled entity such as Cassa Depositi e Prestiti. Such a move would clash with other telecoms buyouts, including Macquarie’s takeover of TDC in Denmark, where funds have targeted ownership of valuable network assets when looking to split up telecoms businesses.

Rome is not opposed to such a project, but will be “looking at several options” over the next few weeks, the people said.

They said KKR had asked Telecom Italia for a response to its 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 Italia’s secondary network for €1.8bn last year through its infrastructure arm and was part of a consortium of private equity groups that took Spanish telecoms operator MasMovil private in a €5bn deal last year. It bought Hyperoptic, a UK fibre company, in 2019.

The US buyout group previously approached Dutch telecoms provider KPN with a takeover offer, which was rejected this year.

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

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