Telecom Italia: Italian saga series finale at risk from cornered Vivendi

Italy is no stranger to sagas of power and intrigue, as the history of the Medici and the Borgia attests. The high-stakes battle for Telecom Italia’s network deserves its own Netflix series.

The debt-laden group has received competing bids for its telecoms grid, and is expected to move forward with KKR’s €23bn offer. Majority shareholder Vivendi is not happy. But with alternatives thin on the ground, the French media group is stuck between a rock and a hard place. 

It is not hard to see why TIM wants to do a deal. It had €25.8bn of net debt at March this year, or 4.5 times 2023 ebitda. It needs to refinance between €3bn and €4bn of debt a year, at higher interest costs. Upgrading its copper network to fibre will cost €13.3bn between 2023 and 2025.

TIM has received two offers, and KKR’s looks the strongest. The floor price, around €19bn, is similar to that offered by its deal rivals Cassa Depositi e Prestiti and Macquarie. KKR has also thrown in €4bn of earn-outs, however. Moreover, CDP owns rival network Open Fiber and faces lengthy antitrust scrutiny. Indeed, there is talk of it taking a small stake in KKR’s consortium instead of making a standalone bid. 

If this all seems like the run-up to a joyful all-cast finale, think again. Vivendi, which owns 24 per cent of TIM, has been gnashing its teeth in the wings and may try to stop the impending nuptials. 

It may feel like TIM’s crown jewels are being sold on the cheap. But a lengthy bidding process has failed to find a higher offer than KKR’s. An organic turnround plan might well require an equity injection — forcing Vivendi either to stump up more cash or be diluted.

That said, cornered creatures are unpredictable and Vivendi may follow through with its threats. In order to block a deal, it would need any agreement to be put to a shareholder vote. Much is likely to hinge on the legally required approval process. The final act of this Italian saga may end up being a courtroom drama.