D.he former state monopoly Telecom Italia is again targeted by financial companies. This time the American fund company KKR is reaching for the company and offering around 10.8 billion euros in cash for 100 percent of the capital. The offer corresponds to a premium of 44 percent on last Friday’s closing price.
Telecom Italia’s board of directors took note of KKR’s offer on Sunday evening, according to a statement. It is a “non-binding” offer, because a detailed company review (“due diligence”) should first take place for four weeks. The board of directors announced that the offer was also subject to the condition that the shareholders of at least 51 percent of the capital and the government endowed with special powers agree. KKR has described its expression of interest as “friendly”, it is said, the fund company is hoping for the approval of the management and the board of directors.
Sixth largest telecommunications provider in Europe
KKR has reportedly already contacted the government. The Americans, who are also the largest shareholder in Springer Verlag, emphasized that long-term infrastructure investments are one of their priorities. At the same time, KKR is likely to be attracted by the comparatively low price: Telecom Italia with its core brand “Tim” now only achieves a fraction of its previous ratings. On Friday, the share was quoted at 0.35 euros, giving the company a market capitalization of 7.5 billion euros after the stock had risen significantly in recent days due to takeover speculation. Twenty years ago the share was worth 6 euros. With around 52,000 employees, the company is now the sixth largest telecommunications provider in Europe.
How the rapprochement between the Americans is received largely depends on two actors: On the one hand, on the Italian government, which has a kind of “golden share”, and also on the state holding company Cassa Depositi e Prestiti (CDP) 9.8 percent of the shares holds. Above all, she is interested in rapid network expansion in a country that is still suffering from significant dead spots. In addition, there is no getting around the French media group Vivendi, which is Telecom Italia’s largest shareholder with just under 24 percent. A Vivendi spokesman announced on Sunday that it wanted to remain a long-term shareholder and continue to work with the government. Reports that Vivendi is working with the fund company CVC on a counter offer are wrong, said the spokesman.
KKR emphasizes long-term interest
The situation is becoming increasingly uncomfortable for Telecom Italia management. Not only the major shareholder Vivendi is dissatisfied with its performance, which led to two profit warnings within three months. The attempt to make the Telekom content more attractive through football broadcasts in cooperation with the provider DAZN has so far hardly paid off. Especially the chairman of the board, Luigi Gubitosi, is counted heavily. Eleven of the fifteen members of the board of directors have therefore requested a special meeting for next Friday. The net profit fell in the third quarter compared to the same period last year by 60 percent to 200 million euros. By the end of the year Telecom Italia expects a decline in sales and earnings before interest, taxes, depreciation and amortization.
KKR emphasizes that its approach cannot be compared with the short-term oriented activist funds. Such a fund was involved in Telecom Italia in the form of the American hedge fund Elliot a few years ago, but it lost the takeover battle against Vivendi and then withdrew. KKR is now emphasizing its long-term interest. That was also shown by the company Fibercop. In Italy she is responsible for the last mile to the Telekom customer. This year, KKR paid 1.8 billion euros for a 37.5 percent stake in the company, which was valued with share capital of 4.7 billion euros and debts of 3 billion euros. Telecom Italia holds 58 percent of Fibercop, the company Fastweb, behind which the Tim competitor Swisscom stands, owns 4.5 percent.
Fibercop is actually supposed to be merged with another network company called Openfiber in order to unify Italy’s fragmented networks. But the plans have not yet been implemented. Telecom Italia wants to keep its hand on the network, and the EU Commission is trying to limit state influence. The Italian government not only has a stake in Telecom Italia, but in addition to the Australian investor Macquarie also has a majority stake in Openfiber, which is primarily intended to promote network expansion in sparsely populated areas.
Meanwhile, Italian politicians and unions fear a sale of Telecom Italia abroad and a clear cut in the workforce. The MP Stefano Fassina from the social democratic party PD called on the government at the weekend not to give in to the game of market forces. “It’s not just about a large company with 40,000 employees in Italy, but also about the national interest in digital change and the security of the nation,” he said.
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