KKR’s view is that Reuters is boosting Telecom Italia shares

By Valentina Za and Elvira Pollina

MILAN (Reuters) – Shares Telecom Italia (MI 🙂 (TIM) rose 30% on Monday after the US KKR fund submitted a non-binding proposal to buy a former Italian telephone monopoly, valued at 10.8 trillion euros ($ 12 billion).

The move came at the start of a council war against Italy’s largest telephone group, which has been mired in crisis for years, but is also crucial to the government’s efforts to expand broadband because it owns the country’s main network.

The offer of KKR, subject to government support and the result of a four-week due diligence analysis, gives Telecom Italia (TIM), with a net debt of 22.5 billion euros, a business value of 33 billion euros.

TIM said on Sunday that the KKR considered the “friendly” offer of 50.5 cents per TIM share, a 45.7% premium to the closing price of the group’s common shares on Friday.

For 1220 GMT, the TIM is almost 28% higher at 0.443 euros.

The price of the offer, which TIM said was “significant,” however, would result in a significant loss of its 24% stake in the company’s principal investor Vivendi (OTC :), which spent an average of 1.07 euros per share.

A person close to the French media group told Reuters that Vivendi believed that the KKR’s offer was not properly valued by TIM, which was once a crown jewel among government assets before the 1997 bad privatization. The TIM board did not comment on the proposal.

Vivendi has made efforts to replace TIM CEO Luigi Gubitos, who has not stopped a revenue hemorrhage, triggering two earnings warnings in three months and a nearly 40% drop in the group’s share value during his three-year tenure.

The Italian Treasury said on Sunday plans to decide whether to use the government’s special powers to block unwanted foreign interests in TIM’s strategic fixed network assets.

BEING A BROADBAND

In addition to protecting the jobs of 42,500 local workers, Rome wants to make sure that the network plans are in line with the European Union’s expansion plan to expand millions of euros to deploy ultra-fast broadband across Italy – backward EU digital connectivity.

KKR wants to take private TIM, which analysts say would facilitate restructuring. Its offer, aimed at ordinary shares and savings shares, corresponds to the 51% guarantee of TIM.

“An experienced private equity provider like KKR may be more appropriate to support the return of TIM,” UBS said.

The New York-based private equity firm has a long track record in the industry. This year he founded the wholesale fiber company Open Dutch Fiber, which in 2020 he bought with rival Cinven and the fourth telephone group MasMovil in Providence Spain.

KKR would conduct TIM’s fixed line business to manage it as a government-regulated asset based on the Terna power grid model or the Snam gas grid model, sources said.

“The path to a formal offer may not be safe or fast, but we believe the offer is articulate and compelling,” HSBC said in a research note, renewing TIM shares to “buy” them.

KKR already has a 37.5% stake in FiberCop, a unit called TIM’s “last mile” network that runs from the street to people’s homes.

Gubitosi has sought to revive a project to merge TIM’s network assets with its rival Open Fiber, a competitor willing to gain control of CDP state investors.

CDP is also the second largest investor in TIM, with a 10% stake.

($ 1 = 0.87872 euros)