Summary
- Board evaluates KKR proposal in special Sunday meeting
- The goal is to spin off fixed-line, run it as a government-regulated asset
- Embattled TIM CEO pushing to revive a single-network plan
- Rival CVC, Advent is also open to studying solutions for TIM
- Govt says to follow plans for TIM’s fixed-line
Telecom Italia (TIM) (TLIT.MI) said on November 21 that it has received a 10.8 billion euro ($12 billion) approach from U.S. fund KKR (KKR.N), aimed at making Italy’s biggest phone group private.
Just as TIM’s CEO Luigi Gubitosi battles for survival after coming under fire from top investor Vivendi (VIV.PA) following two profit warnings in three months, so does the move by KKR.
KKR had set an indicative price of 0.505 euros for its possible buyout offer; a 45.7% premium to the ordinary shares’ closing price on Friday, TIM said. For TIM’s savings shares, KKR would also offer the same price.
Although the TIM board, chaired by former Bank of Italy official Salvatore Rossi met for several hours on Sunday afternoon, it never indicated whether it would support the approach. Taking in all that is happening, KKR had termed its action as “friendly” and aimed at winning the backing of the company and the government.
The foreign interest in Italian companies was “positive news for the country” and if KKR’s plan was to materialize, the market would assess how valid it is, as explained by Italy’s Treasury.
With a focus on plans for TIM’s fixed-line assets, which would be key in determining whether it uses its veto powers, the government will closely follow these developments.
To shield companies deemed of strategic importance from foreign bids, Rome has special anti-takeover powers.
A new owner would also have to take on TIM’s 29 billion euro gross debt.
CARVE OUT
Last year, KKR was brought onboard by Gubitosi in a 1.8 billion euro deal that handed the New York-based fund a 37.5% stake in FiberCop, the unit holding TIM’s last-mile network connecting street cabinets to people’s homes.
On Sunday, two sources close to the matter said KKR’s plan would see TIM carve out its fixed network to be run as a government-regulated asset along the model used by energy grid company Terna (TRN.MI) or gas grid firm Snam (SRG.MI).
In a statement, the Treasury said that the government wants all plans for TIM’s grid to be in line with the goal of rapidly completing broadband rollout across Italy, supported by adequate investments, and protecting jobs.
Gubitosi has started thinking of ways to squeeze money out of TIM’s assets, revisiting, in particular, a plan to merge TIM’s fixed-line grid – its most prized asset – with that of fiber optic rival Open Fiber.
That project, sponsored by the previous government, had run aground under Prime Minister Mario Draghi.
While it prepares to tap billions of euros of European Union recovery funds to boost broadband connectivity in Italy, Rome is aware of the need to find a way to shore up the former telecoms monopoly and protect its 42,500 domestic workers.
PRICE “TOO LOW”
A person close to the French media group said Vivendi, which is pushing to replace Gubitosi, believes KKR’s offer does not adequately value TIM.
As Vivendi faces a steep capital loss on its 24% TIM stake after paying on average 1.071 euros a share, a spokesperson said it remains ready to work alongside Italy’s authorities and institutions for TIM’s long-term success.
Gubitosi is seen as a short-term solution for TIM by Vivendi, people close to the matter have said. On November 21, one person said KKR’s plan may buy Gubitosi a few more months.
Working with former TIM CEO Marco Patuano, now a senior adviser to Nomura (7131.T) in Italy, private equity firms CVC and Advent have also studied possible plans for TIM.
Denying any contacts with Vivendi, a spokesperson for the two funds said they were open to working with all stakeholders on a solution to strengthen TIM.
State investor CDP is set to oversee a strategic asset such as the fixed-line and has taken a 9.8% stake becoming TIM’s second-largest investor after Vivendi.
Credit rating agency S&P on November 19 cut TIM’s fixed network to below the investment-grade level, which is also a key asset supporting the debt burden.
Over the past five years, TIM’s revenue has shrunk by a fifth, hit by aggressive competition at home from rivals such as Iliad, Vodafone (VOD.L), Wind Tre, and Fastweb.
($1 = 0.8859 euros)
