Telecom Italia’s shares soared 30% this Monday (22) after the US fund KKR submitted a non-binding proposal to buy Italy’s former telephone monopoly, valuing it at 10.8 billion euros.
The sharp swing triggered the suspension of trading in shares in Italy’s largest telephone group, which plays an important role in efforts to expand broadband connectivity across the country. Telecom Italia controls the telephone company TIM in Brazil.
At around 8:15 am (Eastern time), the shares were trading up 27.45%, at 0.4416 euros.
KKR’s offer, which is conditional on government support and the result of a four-week due diligence analysis, gives Telecom Italia, with its net debt of 22.5 billion euros, an ‘enterprise value’ of 33 billion of euros.
The company said on Sunday that KKR called its bid of 0.505 euros per Telecom Italia share, a 45.7% premium over the closing price of the group’s common shares on Friday, as “friendly”.
The price, which Telecom Italia said was “indicative”, would represent the company’s main investor, Vivendi, a big loss on its 24% stake, for which it spent an average of 1.07 euros per share.
A person close to the French media group told Reuters that Vivendi believes KKR’s offer does not adequately value Telecom Italia.
The board of the Italian group did not comment on the proposal.
KKR’s bid comes amid turmoil at Telecom Italia, which has issued two profit warnings in three months, prompting Vivendi to push to replace Chief Executive Luigi Gubitosi.
Having failed to contain the decline in Telecom Italia’s revenue, Gubitosi sought options to extract money from the group’s assets, including the most valuable – the fixed-line network, which the government considers strategic.
Italy’s Treasury said on Sunday that the decision to use special government powers to block unwanted foreign interest in strategic companies would depend on plans for the network.
Rome is preparing to spend billions of euros in EU recovery funds to support the rollout of ultra-fast broadband across Italy, which is rated low for digital connectivity in the European Union.
The government wants to make sure all plans for Telecom Italia’s network are in line with Italy’s broadband goals, providing needed investments and protecting jobs.
The company’s 42,500 employees in Italy have been a concern for the government, along with the group’s pile of risk-rated debt, which has hampered the investments needed to upgrade the network.
KKR wants to delist Telecom Italia, which analysts say would make the restructuring easier.
The New York-based private equity firm would split Telecom Italia’s assets, including the fixed-line that would be managed as a government-regulated asset as well as the Terna power grid model or Snam gas grid, the sources said.
KKR is already an investor in Telecom Italia’s network after a €1.8 billion deal signed with Gubitosi last year to acquire a 37.5% stake in FiberCop, the unit that owns the so-called “last mile” network from Telecom Italia that goes from the street to people’s homes.
Rival private equity firms CVC and Advent, which have also been studying plans for Telecom Italia on the advice of their former CEO Marco Patuano, said on Sunday they remained open to working on a solution to strengthen the Italian group.
Reference: CNN Brasil