ITALIAN HIGH finance usually starts winding down for the year in the first week of December when Milan, the country’s business capital, celebrates Ambrose, its patron saint. Not so this year. Over the weekend a new dossier dropped into the in-tray of Mario Draghi, the prime minister, that will keep him and bankers busy into the new year.
On November 21st KKR, a New York-based private-equity firm, launched a €10.8bn ($12bn) bid to buy Telecom Italia (TIM), Italy’s biggest telecoms operator. The friendly bid would be the biggest private-equity buyout ever in Europe. It needs both the approval of the firm’s board members and of the government, which can veto a takeover of a national champion.
Shares in TIM gained 30% after the announcement, but Vivendi, TIM’s largest shareholder, threw a spanner in the works, saying it had no intention to sell its 24% stake. The French media firm says the offer is too low. That is a more than usually moot point. The cash offer gives an enterprise value (including debt) of €33.2bn, and represents a 46% premium on the closing price before KKR bid. But the €0.50 per share KKR could offer is only about half of what Vivendi spent, on average, when it bought its first stake in mid-2015.
TIM has been in terrible shape for years. Its shares had fallen by 70% since Vivendi bought in; under its current boss, Luigi Gubitosi (pictured) it has issued two profit warnings since July. KKR could take control of TIM without Vivendi’s shares by buying at least 51% of shares. Yet the two big shareholders would have to agree broadly what is needed to overhaul TIM as KKR needs a two-thirds majority of shareholder votes if it is to perform radical surgery.
TIM’s problems date back to 1999 when a leveraged buyout by Roberto Colaninno, boss of Olivetti, a smaller telecoms firm, saddled the company with huge debts. After that it was unable to invest enough in its infrastructure to eventually fend off foreign entrants Wind, Iliad and Vodafone. At home Telecom Italia is notorious for political interference, bad governance and squabbling shareholders. As if that were not enough, its workforce is bloated, with around 50,000 employees in Italy.
KKR wants to spin off the firm’s infrastructure business from its services business. The hope is that a separation would give more focus to each unit and allow each to claim the right amount of investment. Analysts expect KKR to move the infrastructure unit into a separate holding firm where it will be the majority investor. Cassa Depositi e Prestiti, Italy’s state development bank, which owns 10% of TIM, is expected to remain a minority investor, letting the Italian state keep a hand in a strategic sector.
Mr Draghi is widely believed to favour the deal. Yet he would not welcome a fight between KKR and Vivendi, which is controlled by Vincent Bolloré, a French corporate raider. Such a scrap could boost populist rivals. Matteo Salvini, leader of the far-right Northern League party which is part of the coalition government, is calling for TIM’s management to be changed, to block a takeover.■
This article appeared in the Business section of the print edition under the headline “Tim’s troubles”