KKR offers to buy stake in Telecom Italia’s fixed-line business

KKR has presented a non-binding offer to buy a stake in Telecom Italia’s fixed-line business that could potentially unlock the stalemate over the debt-laden company’s future.

The Rome-based telecommunications company said its board would meet on Thursday to discuss the offer that would entail a spin-off between the group’s network assets and service operations.

Discussions over Telecom Italia’s future have recently focused on splitting the group into two separate companies with the fixed-line business taking on most of the group’s €25.5bn debt and staff.

KKR’s non-binding offer is for “the purchase of a stake in a company to be set up that matches with the fixed-line network management and the infrastructure, including [Telecom’s last the last mile network] and a stake in [the submarine cable unit] Sparkle,” according to the Telecom Italia statement.

The US fund already owns a 37.5 per cent stake in Telecom Italia’s last mile network, Fibercop, valued at around €2.5bn.

Multiple meetings between Italian government officials and Telecom Italia’s main shareholders have failed to reach a breakthrough because of differences in the company’s valuation and other sensitive issues such as staff and debt.

In a statement to the press on Thursday, the Italian government — which has veto power over the deal because the county’s telecommunications infrastructure is considered a national strategic asset — said it would evaluate the offer based on “the safeguard of jobs and the security of the infrastructure which it deems as crucial.”

Telecom Italia employs 40,000 staff in Italy. The new rightwing government coalition has so far championed a publicly controlled network.

Italy’s state-backed investor Cassa Depositi e Prestiti, which owns a 10 per cent stake in Telecom Italia, recently expressed an interest in buying the fixed-line assets. But it disagreed over the company’s valuation with its largest shareholder, French media conglomerate Vivendi, said multiple people briefed on the talks.

Vivendi, which spent about €4bn to build its 24 per cent stake, faces a potential €3bn loss at Telecom Italia’s current market price. People briefed on the talks with CDP said Vivendi is seeking a valuation of €31bn to back the sale.

The New York-based private equity group, which in 2021 made an offer for all of Telecom Italia that valued it at €33bn, including debt, wants the Italian state to be a significant shareholder as part of the offer, two people told the Financial. Times.

Bankers working with shareholders and investors said it is unlikely that KKR’s offer will be in the range of Vivendi’s €31bn target.

The private equity group’s 2021 approach had been rejected by Vivendi, which said the offer was too low. KKR’s proposal at the time valued the equity of Telecom Italia at about €10.7bn and its net debt at €22.5bn. The company’s debt has risen by €3bn since that offer was made.

Italy’s industry minister, Adolfo Urso, last week said “the only certainty over Telecom’s future is the creation of a national network controlled by Cassa Depositi e Prestiti”.

“Other investors can also take part in this project,” Urso added.

Last month, Vivendi chief executive Arnaud de Puyfontaine resigned from Telecom Italia’s board, citing the new phase of “constructive” negotiations between shareholders and the Italian government.

“It is fundamental that all the relevant parties may be free to work in a constructive and transparent manner to the benefit of [Telecom Italia] and all its shareholders,” he said in a statement at the time.

Shares in Telecom Italia were up over 11 per cent in early trading.

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