NAfter years of tug-of-war over the restructuring of Telecom Italia, an important stage has now been reached: the board of directors of the former monopolist decided on Sunday evening to sell its fixed network in order to get rid of its high level of debt. The American investment fund KKR has offered 18.8 billion euros to take over Telecom Italia’s extensive network in Italy and expand it in the future. The government of Prime Minister Giorgia Meloni wants to approve the transaction. The Italian state is to take over a 20 percent share in the future network company.
However, the largest Telecom Italia shareholder, the French media and entertainment group Vivendi with 24 percent, has announced its opposition to the agreement: “Shareholder rights have been trampled on,” the company said, because the Telecom Italia board of directors decided to sell the network , without holding a general meeting.
The French now want to take legal action against the transaction “by all means possible”. They are not fundamentally against selling the network, but in the past they have demanded 30 billion euros for the network. In the best case, however, Telecom Italia can only get 22 billion euros if the underwater cable company Sparkle is included in the sales package and some other conditions are met.
Not averse to the stock market
Shareholders sent Telecom Italia’s share price down 3 percent on Monday. However, it has been up 15 percent since the beginning of the year. Vivendi’s resistance has deterred some investors. However, several analysts believe that the French can no longer fundamentally stop the agreement.
Italy would thus be taking a path that has not yet been seen in other European telecom markets: an ex-monopolist giving up its landline network and thereby shrinking it to a dimension that corresponds to its former attackers. But Telecom Italia CEO Pietro Labriola sees no alternative to the project. A minority shareholder’s plan to sell not the network but the consumer business and the important subsidiary in Brazil did not find a majority.
Eleven board members voted for the network sale, three against. Telecom Italia is now hoping for an agreement with Vivendi or a rejection of the French in court in order to reduce its mountain of debt by 14 billion euros to only around 6 billion. The important indicator of earnings before taxes, interest, depreciation and amortization (Ebitda) in relation to debt would then fall under number 2.
Government for deal with KKR
By handing over its fixed network, Telecom Italia also wants to shed a number of costly regulatory constraints, such as the obligation to expand the network in sparsely populated areas. Around 20,000 Telecom Italia employees, about half of the total workforce, will move to KKR if the deal gets the green light.
The government stands behind the agreement with the Americans. A few months ago she signed a letter of intent with the American investment fund. She wants to create a nationwide, uniform landline network in Italy. To this end, the future KKR fixed network is to be merged with the Fibercop network, in which Telecom Italia and KKR now have a significant stake. In addition, the Open Fiber network is to be added, which is now 60 percent owned by the Italian state investment company CDP.
The Australian fund company Macquarie is the minority shareholder of Open Fiber with 40 percent. It could be available if the antitrust authorities demand that a competitor to the KKR network be set up in larger cities for competition law reasons. According to reports, the American investment fund does not want to hold the Italian telecom network for very many years. After modernization through fiber optic expansion, a sale or an IPO is definitely possible.
Telecom Italia once even reached out to Apple
Compared to its former size, Telecom Italia is only a shadow of its former self. At the end of the 1990s, the group still had 120,000 employees, was heavily active abroad and had hardly any debt. According to managers responsible at the time, Telecom Italia even submitted a takeover offer for the then weak Apple Group in 1998, which Steve Jobs politely rejected.
But privatization and the emerging competition at home made the company difficult. The competition on the Italian telecom market is considered very fierce. The company has been carrying high debts for a long time. At the end of the 1990s, a consortium of entrepreneurs led by former Piaggio boss Roberto Colaninno took over Telecom Italia and financed around half of the takeover price of 50 billion euros with debt. The company still suffers from this legacy today.
But despite the competition, Telecom Italia has still retained a market share of 30 percent in mobile communications and 40 percent in fixed-line communications. The company is valued at around 5.5 billion euros on the stock exchange – a fraction of its high debts.
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