KKR set to make offer for Telecom Italia’s fixed-line business

KKR is set to present a non-binding offer to buy Telecom Italia’s fixed-line business, said people briefed about the matter.

The offer, which could be sent to the Telecom Italia board as early as Thursday, could unlock the stalemate over the debt-laden company’s future.

Recent discussions over Telecom Italia’s future have focused on spinning off its fixed-line network assets from its service operations, with the fixed-line business taking on most of the group’s €25.5bn debt and staff.

Multiple meetings between Italian government officials and Telecom Italia’s main shareholders have failed to reach a breakthrough because of differences in the company’s valuation and other sensitive issues such as staff and debt.

Italy’s new rightwing government coalition has championed a publicly controlled network.

Italy’s state-backed investor Cassa Depositi e Prestiti, which owns a 10 per cent stake in Telecom Italia, recently expressed an interest in buying the fixed-line assets. But it disagreed over the company’s valuation with its largest shareholder, French media conglomerate Vivendi, said multiple people briefed on the talks.

Vivendi, which spent about €4bn to build its 24 per cent stake, faces a potential €3bn loss at Telecom Italia’s current market price. People briefed on the talks with CDP said Vivendi is seeking a valuation of €31bn to back the sale.

KKR, which already owns a 37.5 per cent stake in Telecom Italia’s last mile network, FiberCop, has informed Italy’s government of its intention to make a bid for Telecom Italia’s fixed-line business, the people said.

The New York-based private equity group, which in 2021 made an offer for all of Telecom Italia that valued it at €33bn, including debt, wants the Italian state to be a significant shareholder as part of the offer, two people told the Financial Times. 

KKR’s stake in the Rome-headquartered company’s FiberCop business is worth about €2.5bn.

Bankers working with shareholders and investors said it is unlikely that KKR’s offer will be in the range of Vivendi’s €31bn target.

The private equity group’s 2021 approach had been rejected by Vivendi, which said the offer was too low. KKR’s proposal at the time valued the equity of Telecom Italia at about €10.7bn and its net debt at €22.5bn. The company’s debt has risen by €3bn since that offer was made.

Italy’s industry minister, Adolfo Urso, last week said “the only certainty over Telecom’s future is the creation of a national network controlled by Cassa Depositi e Prestiti”.

“Other investors can also take part in this project,” Urso added.

Two people involved in the talks said Italy’s government gave KKR the green light to make the non-binding offer this week.

Rome wants to secure the jobs of Telecom Italia’s 40,000 domestic staff and it also wants to take control of the landline grid and the submarine cable unit Sparkle, which it considers strategic assets.

Last month, Vivendi chief executive Arnaud de Puyfontaine resigned from Telecom Italia’s board, citing the new phase of “constructive” negotiations between shareholders and the Italian government.

“It is fundamental that all the relevant parties may be free to work in a constructive and transparent manner to the benefit of [Telecom Italia] and all its shareholders,” he said in a statement at the time.

La Repubblica first reported that KKR was planning a non-binding bid.

KKR declined to comment.