KKR has made an offer to acquire a portion of Telecom Italia’s fixed line operations

KKR has made a non-binding offer to acquire a portion of Telecom Italia’s fixed-line business, which could break the impasse regarding the future of the debt-ridden company.

The board of directors of the Rome-based telecommunications firm said it would meet Thursday to discuss the offer, which involves separating the company’s network assets and service operations.

Current plans for Telecom Italia involve separating the company into a mobile and a fixed-line subsidiary, with the latter taking on the former’s €25.5bn in debt and retaining the majority of the former’s employees.

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

The American investment firm already holds a €2.5 billion (37.5 percent) stake in Fibercop, Telecom Italia’s last mile network.

Telecom Italia’s main shareholders and the Italian government have met multiple times, but they have been unable to resolve their differences over the company’s valuation and other contentious issues like staffing and debt.

The Italian government

Which has veto power over the deal because the country’s telecommunications infrastructure is considered a national strategic asset, issued a statement to the press on Thursday saying it would evaluate the offer based on “the safeguard of jobs and the security of the infrastructure which it deems crucial.”

With a total of 40,000 employees, Telecom Italia is Italy’s largest private employer. So far, the new right-wing government coalition has supported a publicly owned and operated infrastructure.

The Italian government's investment arm

The Italian government’s investment arm, Cassa Depositi e Prestiti, which currently holds a 10% stake in Telecom Italia, has recently expressed an interest in purchasing the fixed-line assets. But according to multiple people familiar with the talks, the company and its largest shareholder, the French media conglomerate Vivendi, couldn’t agree on a valuation of the business.

Vivendi could lose as much as €3 billion at the current market price of Telecom Italia, despite investing around €4 billion to acquire its 24 percent stake. Those familiar with Vivendi’s negotiations with CDP say the company is looking for a valuation of €31 billion to support the sale.

According to the Financial Times

The New York-based private equity group that offered to buy all of Telecom Italia in 2021 at a price of €33bn (including debt) wants the Italian state to be a significant shareholder as part of the offer.

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Shareholder and investor bankers have expressed doubt that KKR’s offer will be within Vivendi’s €31 billion target range.

Vivendi had turned down the private equity firm’s 2021 offer because it was “too low,” as the company put it. By KKR’s proposal, Telecom Italia’s equity would be worth about €10.7bn and its net debt would be worth about €22.5bn. Since that offer was made, the company’s debt has increased by €3 billion.

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

The project is open to “other investors,” Urso said.

Chief Executive Officer of Vivendi Arnaud de Puyfontaine resigned from Telecom Italia’s board last month, citing the new phase of “constructive” negotiations between shareholders and the Italian government as his reason.

He said at the time, “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.”

In the first few minutes of trading, Telecom Italia’s stock rose by more than 11 percent.

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