KKR Fund Set to Unveil Binding Offer to Buy Telecom Italia Network

KKR & Co. is set to submit a binding offer for Telecom Italia SpA’s phone network, in what promises to be a game-changing deal for the ex-monopolist looking to slash its massive debt pile, people familiar with the matter said.

(Bloomberg) — KKR & Co. is set to submit a binding offer for Telecom Italia SpA’s phone network, in what promises to be a game-changing deal for the ex-monopolist looking to slash its massive debt pile, people familiar with the matter said.

Telecom Italia expects the final bid from the US private equity firm, following months of negotiations, by the end of this weekend at the latest, the people said, in line with a company deadline. KKR has valued the grid at as much as €23 billion ($24 billion).

The carrier will review the bid, which already has the backing of the Italian government, at a board meeting that could be scheduled as soon as the end of this month, the people said. Under the plan, the country’s Finance Ministry would take up to a 20% stake in the grid unit for as much as €2.5 billion. 

The Italian treasury is also set to get a final green light from the country top court of auditors — also known as Corte dei Conti — for its investment in the company, the people said. A spokesman for the court declined to comment. 

Prime Minister Giorgia Meloni has signaled that she considers Telecom Italia’s network a key asset that must retain a degree of public oversight, and the state has a veto over deals involving strategic assets. Italian infrastructure fund F2i SGR SpA plans to join KKR in the bid, a partnership that would facilitate oversight.

Representatives for KKR and for Telecom Italia declined to comment.

Read More: Meloni Muscles In on KKR’s Telecom Italia Deal, Taking Stake

The network sale, the brainchild of Telecom Italia Chief Executive Officer Pietro Labriola, would be a milestone for the Milan-based company. It would also be the first such a move by any European telecommunications group, partly due to the unique conditions in the Italian sector. 

Cutthroat Market

Italy has one of the world’s most competitive telecoms markets and competition has heated up in recent years with the entrance of new players like Iliad SA. The French operator entered the Italian mobile market in 2018, positioning itself as a no-frills specialist and sparking a cutthroat price war.

That’s left Telecom Italia with few options beside disposing of its network if it hopes to tackle its €31 billion in gross debt. And with interest rates on the rise, the need to sell has become all the more urgent. 

As a former monopolist, Telecom Italia faces a complex mix of high labor costs and ever-bigger investments to modernize its infrastructure. Grid separation has been bandied about in industrial and political circles for over a decade, with details and deal outlines shifting constantly. 

Telecom Italia’s board in June gave its nod to the KKR bid as the preferred route for a network selloff, citing execution and timing advantages compared with a rival offer from Italian state lender Cassa Depositi e Prestiti SpA and Macquarie Asset Management.

But the final word on a network sale may come from outside the country. Telecom Italia’s largest shareholder, French media conglomerate Vivendi SE, has signaled its opposition to the current deal and has repeatedly warned that it won’t accept any network offer below €30 billion. 

 

–With assistance from Antonio Vanuzzo.

(Updates with auditor court details in paragraph 4.)

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