A non-binding proposal has been submitted by MILAN Reuters -- U.S. private equity firm KKR. com markets deals with telecom-italia- board-meet sunday-kkrs takeover-proposal sources -- 2021 -- 11 -- 21 to take Telecom Italia TIM private, valuing Italy's former phone monopoly at 33 billion euros $37 billion, including net debt.
KKR is the latest investment firm to be involved with TIM, in which French media group Vivendi is the largest shareholder.
KKR already has skin in the game, as it spent 1.8 billion euros on a 37.5% stake in TIM's last-mile network reaching into people's homes.
Italy lags behind other European Union countries in providing fast broadband services to homes and businesses, but is preparing to deploy 6.7 billion euros of EU recovery funds to speed up their roll out.
Redburn analysts believe that a gap of around 10 million ultra-fast lines between Italy and the UK, which have a similar population, could be caused by an incredible potential 65% increase in market size Italy's broadband strategy, which includes incentives for telecoms operators and vouchers for small and medium-sized SME companies tapping broadband services. TIM expects to distribute 500 million euro of SME vouchers in the near future.
Italian government, led by Prime Minister Mario Draghi, has said it will take a stance on KKR's proposal, which will depend on plans for TIM's infrastructure assets.
Italy has 'golden powers' to protect strategic companies such as TIM from foreign interest.
The government has praised KKR's interest as good news for Italy, setting up a special committee to oversee developments with the bid.
The government is keen to invest to upgrade the country's main grid because of its fragile finances and the fate of its 42,500 domestic workers.
TIM is crippled by a debt burden equal to four times its core profit, a legacy of an ill-fated privatisation more than two decades ago, followed by debt-fuelled takeovers.
TIM is faced with depressed market values due to heavy investments facing the industry, like other telecom operators. Over the past five years, there has been a 17% decline in revenues because of the frocious price competition at home.
In order to boost broadband take-up, TIM CEO Luigi Gubitosi has struck a soccer rights deal with streaming group DAZN, which cost TIM 1 billion euros over three years, but its initial performance has fallen short of expectations.
TIM has a 24% stake which it carries on its books at 0.83 euros, based on the average 1.07 euro per share. KKR's offer, equivalent to 0.505 euros a share, exposes it to a big capital loss.
Under KKR's plan to separate TIM's infrastructure assets from its services, Vivendi could partner with the services arm to provide content and build a southern-European media group.
Vivendi is in loggerheads with Gubitosi who was brought in by rival TIM investor Elliott in 2018 and is pushing to oust him to have a bigger say over strategy.
TIM's debt burden makes it likely that KKR will pursue a break up strategy to recover its investment.
Two people close to the matter said that KKR wants to spin off TIM's fixed line business to create an open access infrastructure group that is one-third controlled by state investor CDP like Italy's gas or power grids.
State control of the grid could help overcome the opposition of EU competition authorities to Italy's single network plan, the people said, removing the main hurdle to a proposed merger between TIM's network assets and CDP-controlled rival fibre group Open Fiber.
The value of TIM's assets, including its domestic fixed and mobile businesses, a Brazilian and a towers unit, data centres, was calculated by Mediobanca Securities at 26 billion euros before taking into account the company's debt.