ITOP OF TALIAN Finance typically begins to wind down for the year in the first week of December, when Milan, the country’s economic capital, celebrates Ambrose, its patron saint. This is not the case this year. During the weekend, a new file fell in the bin of Mario Draghi, the Prime Minister, who will occupy him and the bankers during the new year.
November 21 KKR, a New York-based private equity firm, has launched a € 10.8 billion ($ 12 billion) bid to buy Telecom Italia (TIM), Italy’s largest telecommunications operator. The friendly offer would be the biggest private equity buyout ever in Europe. He needs both the approval of the company’s board members and the government, which can veto a takeover of a national champion.
Actions in TIM gained 30% after the announcement, but Vivendi, TIMmajor shareholder, threw a wrench into the works, claiming he had no plans to sell his 24% stake. The French media company believes that the offer is too low. This is a more than usual moot point. The cash offer gives an enterprise value (debt included) of € 33.2bn, and represents a premium of 46% on the closing price before KKR offer. But the € 0.50 per share KKR could offer is only about half of what Vivendi spent, on average, when it bought its first stake in mid-2015.
TIM has been in terrible shape for years. Its shares had fallen by 70% since the takeover of Vivendi; under his current boss, Luigi Gubitosi (pictured), he has issued two profit warnings since July. KKR could take control of TIM without Vivendi shares by purchasing at least 51% of the shares. Still, the two big shareholders should broadly agree on what is needed to reshuffle TIM like KKR needs a two-thirds majority of shareholders’ votes if he is to perform radical surgery.
TIMOlivetti’s problems date back to 1999, when a debt buyout by Roberto Colaninno, boss of Olivetti, a small telecommunications company, burdened the company with huge debts. After that, it was not able to invest enough in its infrastructure to ultimately push back foreign entrants Wind, Iliad and Vodafone. With us, Telecom Italia is known for its political interference, its bad governance and its shareholder quarrels. As if that were not enough, its workforce is bloated, with around 50,000 employees in Italy.
KKR wants to separate the company’s infrastructure activity from its service activity. The hope is that a separation would give more attention to each unit and allow each to claim the right amount of investment. Analysts expect KKR move the infrastructure unit to a separate holding company where it will be the majority investor. Cassa Depositi e Prestiti, the Italian state development bank, which owns 10% of TIM, should remain a minority investor, leaving the Italian state to retain control in a strategic sector.
Mr Draghi is generally believed to be in favor of the deal. Yet he wouldn’t accept a fight between KKR and Vivendi, which is controlled by Vincent Bolloré, a French corporate raider. Such junk could stimulate populist rivals. Matteo Salvini, leader of the far-right Northern League party which is part of the coalition government, calls for TIMto change the direction of, to block a takeover.■
This article appeared in the Affairs section of the print edition under the headline “Tim’s troubles”