KKR makes $ 12 billion approach to privatize Telecom Italia

The Telecom Italia logo for the TIM brand is seen on a building in Rome, Italy on April 9, 2016. REUTERS / Alessandro Bianchi / File Photo

MILAN, Nov. 21 (Reuters) – Telecom Italia (TIM) (TLIT.MI) has received a € 10.8 billion ($ 12 billion) approach from US fund KKR (KKR.N) to privatize the most Italy’s major telephone group, the company said on Sunday.

KKR’s move comes as TIM CEO Luigi Gubitosi fights for his survival after being criticized by lead investor Vivendi (VIV.PA) over two profit warnings in three months.

TIM said KKR had set an indicative price of 0.505 euros for its possible takeover offer – a 45.7% premium over the closing price of ordinary shares on Friday. KKR would also offer the same price for TIM savings shares.

TIM’s board, chaired by former Bank of Italy chief Salvatore Rossi, met for several hours on Sunday afternoon, but in a brief statement gave no indication as to its support for the approach. He noted that KKR called its action “friendly” and aimed to gain support from the company and the government.

The Italian Treasury said foreign interest in Italian companies was “positive news for the country” and that the market would assess the validity of KKR’s plan if it materialized.

The government will follow developments closely with a focus on plans for TIM’s fixed-line assets, which would be critical in determining whether it uses its veto powers.

Rome has special anti-takeover powers to protect companies deemed to be of strategic importance against foreign offers.

A new owner is also expected to take on TIM’s € 29 billion gross debt.

CUT

Gubitosi joined KKR last year in a € 1.8 billion deal that gave the New York-based fund a 37.5% stake in FiberCop, the unit owning the latter’s network. kilometer of TIM connecting street cabinets to people’s homes.

KKR’s plan would see TIM create its fixed network to be managed as a government-regulated asset based on the model used by energy grid company Terna (TRN.MI) or gas grid company Snam (SRG. MI), two sources close to the case. said earlier on Sunday.

The government wants any TIM network project to be in line with the goal of quickly completing the deployment of broadband across Italy, backed by adequate investment, and protecting jobs, the Treasury said in its statement. .

Gubitosi began looking for ways to extract cash from TIM’s assets, in particular revisiting a plan to merge TIM’s fixed network – its most valuable asset – with that of its Open Fiber rival.

Sponsored by the previous government, this project had failed under Prime Minister Mario Draghi.

Rome, which is poised to mobilize billions of euros in European Union stimulus funds to boost broadband connectivity in Italy, recognizes the need to find a way to consolidate the former telecommunications monopoly and protect its 42,500 domestic workers.

“TOO LOW” PRICE

Vivendi, who is pushing to replace Gubitosi, believes that KKR’s offer does not sufficiently value TIM, a person close to the French media group said.

Vivendi, which faces a large capital loss on its 24% stake in TIM after paying an average of 1.071 euros per share, remains ready to work alongside the Italian authorities and institutions for the long-term success of TIM, has said a spokesperson.

Vivendi sees Gubitosi as a short-term solution for TIM, people familiar with the matter said. One person said on Sunday that KKR’s plan could buy Gubitosi a few more months. Read more

Private equity firms CVC and Advent have also explored possible projects for TIM, working with former TIM CEO Marco Patuano, now a senior advisor to Nomura (7131.T) in Italy.

A spokesperson for the two funds said he was open to working with all stakeholders on a solution to strengthen TIM, denying any contact with Vivendi.

To oversee a strategic asset like the fixed line, the public investor CDP took a 9.8% stake, thus becoming TIM’s second investor after Vivendi.

TIM’s fixed network is also a key asset in supporting the debt burden which was further reduced below investment grade level by rating agency S&P on Friday. Read more

TIM’s revenues have fallen by a fifth over the past five years, due to aggressive home competition from competitors such as Iliad, Vodafone (VOD.L), Wind Tre and Fastweb.

($ 1 = € 0.8859)

Additional reporting by Agnieszka Flak in Milan and Giuseppe Fonte in Rome; edited by Andrew Heavens, David Evans and Keith Weir

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