Vivendi (VIV.PA), Telecom Italia’s (TLIT.MI) top investor, said it intended to stay in the group for the long haul, sending a warning to KKR (KKR.N) that it could hamper the U.S. fund’s takeover plans for the Italian phone company.
KKR’s 10.8 billion euro ($12 billion) non-binding, cash proposal for Telecom Italia (TIM), has been criticized by Vivendi saying that it does not adequately value Italy’s former phone monopoly.
After Vivendi’s comment, shares in TIM, which gained 30% on Monday closed down 4.7%, underperforming Milan’s 1.7% fall (.FTITLMS). A Vivendi spokesperson stated:
“Vivendi wishes to clarify that the group is very attached to Italy and Telecom Italia (and) has no intention to sell its stake.”
In order to be deemed Europe’s biggest private equity buyout, KKR, whose approach gives TIM an enterprise value of 33 billion euros including net debt, could offer 0.505 euros a share.
Although that represents a 45.7% premium to the closing price of ordinary shares before the announcement, it is below the 0.83 euros per share at which Vivendi books its 24% TIM stake. UBS stated:
“The premium is above most of the recent delistings registered in the EU telecom sector and although the valuation may appear undemanding this could be explained by TIM’s difficult fundamental outlook.” Analysts say that KKR’s plan to take TIM private would make a restructuring easy.
With the offer gaining a minimum acceptance threshold of 51%, Vivendi’s backing is strictly not needed.
However, a two-thirds majority is required to push through extraordinary resolutions thus without TIM’s top investor onboard, KKR would struggle to turn TIM around.
Since Vivendi became a shareholder in mid-2015, it has seen TIM shares lose 70% against a 40% sector drop (.SXKP).
PRESSURE ON CEO
Amid ferocious domestic competition and a costly soccer rights deal with Dazn, two profit warnings from TIM since July have strengthened Vivendi’s hand in demanding change at the helm.
Sources have said that CEO Luigi Gubitosi, having failed to stem TIM’s revenue decline, had presented the board with a project to squeeze cash from TIM’s assets, including its prized fixed lines, but failed to win Vivendi’s backing.
A new meeting on the company’s performance has been called for November 26, following the board meeting earlier this month at Vivendi’s behest to discuss TIM’s woes.
The board, following KKR’s approach, is also expected to decide whether to grant access to data for the four-week due diligence analysis KKR has requested before a proper offer.
Friday’s board meeting could be pushed back giving directors more time to study the file, two people close to the matter said. Another source said that the meeting could be delayed by a week
In the meantime, after the biggest shareholder challenged the CEO, TIM’s nomination committee meets on Wednesday and the risk control board on Thursday to discuss the situation.
Seeing that stalled plans to spin TIM’s fixed assets off and merge them with those of rival Open Fiber get fresh impetus, sources have said that Vivendi wants to get directly involved in discussions over TIM’s fixed assets.
The government, which has created a special committee to follow developments with KKR’s approach, deems such assets strategic. On November 23, Industry Minister Giancarlo Giorgetti, one of its members, said the government would assess any project concerning a strategic asset such as TIM’s network when it has the details, after the first meeting on Monday night.
Italy’s main telecoms infrastructure is provided by TIM’s fixed-line business and plays a major role in broadband rollout efforts on which Rome plans to spend billions of euros of European Union funds to improve coverage.
To oversee the network, state investor CDP has taken a 10% stake in TIM and is expected to play a key role in any plans to carve out the grid.