Telecom Italia boss defends KKR deal as only way to secure group’s future

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The chief executive of Telecom Italia has argued the group’s proposed €22bn deal to sell part of its business to KKR is the only way to ensure its future, despite objections from its biggest shareholder Vivendi.

In his first interview since a nine-month negotiation over the deal ended, Pietro Labriola said: “It’s not like we’ve suddenly pulled a rabbit out of a hat . . . the group has discussed the network sale at least five times since 2013.”

Telecom Italia’s board this week accepted the offer for its fixed-line phone and internet network, which would be split from its services business.

French media conglomerate Vivendi, which had sought a more than €30bn price for the deal, has said the board’s decision was “unlawful” without a shareholder vote. It is now threatening the company with legal action but Telecom Italia’s lawyers told analysts on Thursday that no complaint had been lodged yet.

“The board of directors, including representatives of our largest shareholder, unanimously approved an industrial plan which envisaged a sale of the network as a way to deleverage the company, and that’s exactly what we did,” Labriola told the Financial Times.

The deal will allow junk-rated Telecom Italia to cut its debt from the current €26bn to €14bn and has prompted rating agencies Fitch, S&P and Moody’s to place the group in review for a rating upgrade this week. 

“In the past it was easier to take a wait-and-see approach,” Labriola said, adding: “Now, with our interest payments rising, it was no longer possible.”

Telecom Italia’s interest payments have risen to €1.3bn in the nine months to September, wiping out its margins over the period. 

In 2022, it took a €2bn impairment charge after issuing three profit warnings in 2021, the last one right after KKR’s first €33bn offer, which envisaged taking the company private and led to the ousting of Labriola’s predecessor. 

The reshaping of the company has often pitted management against Vivendi — which has spent €4bn since 2015 to build a 24 per cent stake. Telecom Italia’s share price has fallen from €1 per share in 2015 to the current €0.26 and Vivendi has had to write down its investment twice.

“We took the company apart and put it back together like a Lego set multiple times to see if there were other ways forward and there weren’t,” said Labriola. 

He added that the group had also considered a demerger as well as selling other assets, including its profitable Brazilian operations, to reduce its debt. “But those weren’t viable plans . . . Brazil is where 30 per cent of our [earnings] come from,” said Labriola.

“Of course, we also looked at keeping the network and selling the services company, but the truth is that it wouldn’t have solved our debt problem and there wasn’t a queue of buyers beating down the door.”

Telecom Italia’s consumer business includes certain coverage and customer migration commitments with Fibercop, the company that is 37.5 per cent owned by KKR and that operates the last mile of the telecoms network in Italy. Any potential buyer would have had to take on such commitments weighing on the valuation, according to Labriola.  

He also rejected criticism that shareholders had not been given a vote on the KKR deal, saying this was not required because “Telecom Italia’s corporate purpose will not change”.

“It’s like saying that a restaurant’s business purpose changes if the owner sells the property in which the restaurant is located [while continuing to operate it],” he added. 

“Our bylaws don’t require us to own the infrastructure.”

However, he offered angry shareholders an olive branch: “Let’s sit down and talk,” he said, suggesting any legal action would be a distraction from business.

“This [deal] is not just a financial operation, it will finally give us the opportunity to invest both within our company and outside, which is pivotal amid the current transformation within our sector,” he said.