A KKR logo appears on the floor of the New York Stock Exchange (NYSE), August 23, 2018.
Brendon McDermide | Reuters
Telecom Italy (TIM) has received 10.8 billion euros ($ 12 billion) in funding from US-funded KKR aimed at privatizing Italy’s largest phone group, the company said on Sunday.
KKR’s move comes as TIM CEO Luigi Gubitosi struggles to survive after being criticized by top investor Vivendi after two profit warnings in three months.
TIM says KKR has set a reference price of 0.505 euros for its potential buyout offer – a premium of 45.7% of the closing price of the common stock on Friday. KKR will offer the same price for TIM’s savings shares.
The TIM board, chaired by former Italian official Salvatore Rossi, met for several hours on Sunday afternoon, but in a brief statement did not indicate whether it would support the move. It noted that KKR called its move “friendly” and aimed to win the support of the company and the government.
The Italian Treasury said foreign interest in Italian companies would be “positive news for the country” and would assess the market’s legitimacy if KKR’s plan was implemented.
The government will closely follow developments focusing on TIM’s fixed-line asset plan, which will be crucial in determining whether it uses its veto power.
Rome has special anti-takeover capabilities to protect companies considered to be of strategic importance from foreign bids.
A new owner will also have to take out a 29 29 billion gross loan from TIM.
Gubitosi struck a 8 1.8 billion deal with KKR last year to give New York-based fund a 37.5% stake in FiberCop, a unit that connects street cabinets to people’s homes with TIM’s last-mile network.
KKR plans to see TIM power grid company build its specific network to run as a government-regulated asset with the model used by Tarna or gas grid firm Snam, two sources close to the matter said earlier in the day.
The government wants any plans for TIM’s grid to be consistent with the goal of completing broadband rollouts across Italy quickly, supported by adequate investment, and job security, the Treasury said in a statement.
Gubitosi is looking at ways to extract money from TIM’s assets, especially TIM’s fixed-line grid – its most valuable asset – a plan to merge with fiber optic rival Open Fiber.
Under the auspices of the previous government, the project worked under Prime Minister Mario Draghi.
As Rome prepares to tap billions of euros from the European Union’s recovery fund to expand broadband connectivity in Italy, the former telecom is aware of the exclusive limitations and the need to find ways to protect its 42,500 domestic workers.
Price ‘too low’
Vivendi, who is pushing for Gubitosi’s replacement, believes KKR’s offer does not give TIM enough value, said a source close to the French media group.
A spokesman said Vivendi, which has suffered a major capital loss on its 24% TIM shares after paying 0 1,071 per share, is ready to work with Italian authorities and institutions for TIM’s long-term success.
Vivendi sees Gubitosi as a short-term solution to TIM, say people close to the issue. One person said Sunday that KKR plans to buy Gubitosi in a few more months.
Private equity firm CVC and Advent have also studied TIM’s potential plans, working with former TIM CEO Marco Patuano, now a senior adviser to Nomura in Italy.
A spokesman for the two funds said they were open to working with all stakeholders on a solution to strengthen TIM, denying any contact with Vivendi.
To oversee strategic assets such as fixed lines, state investor CDP has taken a 9.8% stake, becoming TIM’s second largest investor after Vivendi.
TIM’s fixed network is also a key asset supporting the debt burden, which was further cut below the investment grade level by credit rating agency S&P on Friday.
TIM’s revenue has shrunk by five per cent in the last five years due to aggressive competition from rivals such as the Iliad, Vodafone, Wind Tray and Fastweb.