Telecom Italia: shareholders deserve a competitive auction

Italian takeovers are rarely straightforward affairs. It is not uncommon for “patriotic” national bidders to wade in with government backing. Telecom Italia shareholders must hope Prime Minister Giorgia Meloni is not tempted to add the telecoms company to that list.

State-owned lender Cassa Depositi e Prestiti has made an offer for Telecom Italia’s infrastructure unit NetCo. This follows a bid from private equity giant KKR in February, which reportedly valued the network at €18bn plus a €2bn earnout.

CDP’s bid is similar to KKR’s, but it attributes less value to FiberCop, the NetCo unit that runs the last-mile network between streets and homes. KKR, which already has a 37.5 per cent stake in FiberCop, appears to be pencilling in some €10bn. That would cut net proceeds to TI shareholders to around €14bn. CDP reportedly thinks FiberCop is worth less than €7.7bn, which would increase the overall payout for TI itself

CDP’s offer comes with added uncertainty. As it owns rival network Open Fiber any deal would need antitrust clearance. This may take time and require disposals. TI has €25.5bn of net debt, equivalent to 4.4 times expected ebitda for 2022. It needs to close a deal in a timely fashion.

TI will now be trying to start a competitive auction. KKR’s €18bn offer is certainly no knockout, valuing TI at nine times ebitda. Other infrastructure deals in the sector have achieved mid- to high-teen multiples.

True, TI’s network is mostly copper, and will need some €7bn of capex in the next three years to upgrade to fibre. But there might still be room to sweeten the overall terms. KKR may want to use its position as a minority shareholder of FiberCop to angle for a higher CDP bid.

This would all be to the benefit of TI shareholders — unless the Italian government queers the pitch. Meloni should make it clear that this is one for the market to call and leave the bidders to slug it out.