KKR Telecom has offered a buyout for Italy

Telecom Italy was holding an emergency board meeting on Sunday to evaluate a takeover offer from US private equity group KKR, an agreement that would be one of the largest telecom purchases of all time.

KKR already has a 37.5 percent stake in Telecom Italy’s “Last Mile” network, but according to three people with first-hand knowledge of the situation, has gone on to make a full offer for the entire company.

The offer for the Italian group, valued at € 7.5bn and with a net debt of .5 22.5bn, is the latest sign of private equity interest in the European telecom sector. Funds seek to break up businesses, separate networks from consumer businesses, realize value, or improve the performance of companies.

Telecom Italia, a fierce battle for control between French investor Vivendi and U.S. employee fund Elliott management four years ago, has been raging in recent quarters and has issued two profit warnings in the space of three months this year.

Its shares have fallen a quarter since June and nearly two-thirds since 2018, putting pressure on Luigi Gubitosi, an Italian company personality who was appointed chief executive to turn the company around that year. A board meeting was scheduled for November 26 to discuss a possible management overhaul.

Vivendi denied that it was in talks with KKR or CVC – as reported – or any other possible tech-private entity from Telecom Italia. The French company is the largest shareholder in Telecom Italy with 24 per cent stake, followed by state lender Casa Deposito e Prestige, with about 10 per cent stake.

“Vivendi is a long-term shareholder and we want to work with the government and other organizations to get Telecom Italy back on track,” the company said. “We are not happy with the performance. . . The important thing is to stop this ship from going down. ”

Telecom Italia was Europe’s most valuable telecom company in the 1990s but has jumped from crisis to crisis over the past two decades. It is a politically important company and the government has a “golden power” that is not considered in the national interest to block takeovers or sale of assets.

The prime minister’s office, the Italian Treasury and the Casa Deposito e Prestige declined to comment on whether Rome plans to exercise its veto power over foreign occupation of strategic assets.

Rome officials say the government will closely follow developments and will not abandon surveillance of assets considering it “strategic” like Telecom Italy’s primary network and its sparkle high-density cable.

According to some in Rome, KKR is willing to split the company in two and hand over the regulatory part of Telecom Italy’s network to state-regulated entities such as Casa Deposit e Prestige. Such a move would be in conflict with other telecom buy-outs, including Macquarie’s TDC takeover in Denmark, where funds target ownership of valuable network assets as it divides telecom businesses.

Rome does not oppose such a project, but will look at “several options” in the coming weeks, people say.

They said KKR Telecom had asked Italy to respond to its offer, which was reported by Corriere della Sera in the first four weeks.

KKR is one of the most active investors in European telecom. It bought a minority stake in Telecom Italy’s secondary network through € 1.8bn of infrastructure last year and was part of a consortium of private equity groups that privatized Spanish telecom operator Massmovil in a 5 5 billion deal last year. It was bought in 2019 by Hyperoptic, a fiber company in the UK.

The US buyout group had earlier brought a takeover offer to Dutch telecom provider KPN, which was rejected this year.

Additional reports by Sarah White in Paris and Emma Agimang in London

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