Italy signs deal with KKR to take 20% stake in Telecom Italia’s landline grid

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The Italian government could take as much as a 20 per cent stake in Telecom Italia’s prized landline network as part of a preliminary agreement with US private equity fund KKR, which is preparing a final bid for the business.

Italy will retain strategic oversight of the phone network as part of the memorandum of understanding announced on Thursday, and own up to 20 per cent of it, while KKR will make a €23bn binding offer by the end of next month after two years of protracted negotiations.

Shares in Telecom Italia (TIM) rose nearly 6 per cent after the Italian finance minister revealed the agreement late on Thursday.

The preliminary deal is the latest twist in a protracted battle during which the group’s main shareholder, French conglomerate Vivendi, fought any attempt to split the network and sell it — an effort potentially thwarted by the government’s unexpected intervention. The Treasury’s involvement came as Prime Minister Giorgia Meloni sought to maintain state oversight over foreign investment in the country’s key assets.

Under Italy’s sweeping “golden power” rules, the government can veto any deal involving the foreign takeover of assets that are deemed as vital to national security, technology or infrastructure.

Equita analysts said the “direct and active” intervention from the Treasury made explicit “the strong and broad political support for the transaction” as well as offering guarantees on the “golden power issue.”

Meloni has repeatedly signalled that she considered TIM a strategic asset, which should retain some level of public oversight, and indicated her unwillingness to relinquish control of it to a foreign private equity firm.

The former monopoly, which is one of Italy’s biggest employers, agreed to put its network business up for sale earlier this year in an attempt to resolve the heavily indebted mobile and broadband group’s future.

The plans to split the fixed line network from the group’s other assets sparked fierce opposition from Vivendi when it was first proposed last year. Vivendi, which is backed by billionaire Vincent Bolloré, holds a 23.75 per cent stake in TIM and more than 17 per cent of its voting rights. The company believed that the private equity firm’s offer undervalued TIM’s network and that any sale would be a strategic mistake.

Vivendi has invested more than €4bn in building its TIM stake over the past eight years, initially describing it as part of a strategy to create a media champion in southern Europe.

But TIM’s stock has plummeted: before the MoU between Italy and KKR was announced, its shares traded at €0.20 each. At the time of Vivendi’s initial investment in 2015, the shares were worth more than €1 each.

People close to the talks have said Vivendi has insisted it would not accept any offer below €30bn. In June, when TIM’s board approved exclusive negotiations with KKR, people close to the French group also suggested Vivendi might initiate legal action to block the sale.

However, according to industry insiders in Milan, and two Italian officials in Rome, the French group would choose to avoid a feud with the Meloni government.

Vivendi is also an investor in Media for Europe, the Berlusconi family’s broadcast network. Following the death of founder and former prime minister Silvio Berlusconi, his children might eventually decide to sell part of the media empire, and insiders say that if the Bolloré family wants to be a contender it must avoid a collision course over TIM with the government.