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Q & A-Why did Telecom Italia get caught up in the excitement of bidding?

Milan: US private equity firm KKR has submitted a non-binding proposal https://www.reuters.com/markets/deals/telecom-italia-board-meet-sunday-kkrs-takeover-proposal-sources- 2021-11- 21 Telecom Italia (TIM) will be kept private and Italy’s previous telephone monopoly will be valued at € 33 billion ($ 37 billion), including net debt.

KKR is a state-of-the-art investment company involved in TIM, the largest single shareholder of the French media group Vivendi.

Why now?

KKR already has a skin in the game and is spending € 1.8 billion on a 37.5% stake in TIM’s last mile network to reach people’s homes.

Italy lags behind other European Union countries in providing high-speed broadband services to homes and businesses, but is preparing to roll out a € 6.7 billion EU recovery fund to accelerate its rollout.

Analysts at Redburn have calculated a gap of about 10 million ultra-high-speed lines between Italy and the United Kingdom, which have similar populations, and pointed out that “the market size could increase by 65%.” I am.

Italy’s broadband strategy includes incentives for carriers and vouchers for small and medium-sized (SME) enterprises using broadband services. TIM expects a € 500 million small business voucher to be distributed shortly.

Could Italy stop KKR on that truck?

The Italian government, led by Prime Minister Mario Draghi, said KKR’s stance on the proposal depends on TIM’s plans for infrastructure assets.

Italy has a “golden power” that protects strategic companies such as TIM from unwanted foreign interests.

However, the government welcomed KKR’s interest as good news for Italy and set up a special committee to oversee the progress of bidding.

TIM’s fragile finances and the fate of 42,500 domestic workers have long been a concern for governments enthusiastic about investing to upgrade the country’s main grid.

How is Tim’s finances?

TIM is dysfunctional due to debt burdens equivalent to about four times its core profits, a legacy of unlucky privatization over 20 years ago, and subsequent debt acquisitions.

Like other carriers, TIM is working to reduce its market value with the large investment facing the industry. Fierce price competition at home has exacerbated the challenge, with revenues declining 17% over the last five years.

To promote broadband adoption, TIM CEO Luigi Gubitosi has signed a € 1 billion football rights agreement with streaming group DAZN over a three-year period, but initial performance is below expectations.

What about Vivendi?

TIM’s top investors are spending an average of € 1.07 per share to build a 24% stake and are taking over the books at € 0.83. KKR’s offer is worth € 0.505 per share and is exposed to significant capital loss.

However, under TKR’s plans to separate TIM’s infrastructure assets from services, Vivendi can partner with the services department to provide content and further promote projects to build media groups in Southern Europe.

Vivendi is in the head of the loggerhead turtle along with Gubitosi brought in by rival TIM investor Elliott in 2018, kicking him out to have a greater say on strategy.

Gubitoshi’s future will be in the limelight again at the board meeting scheduled for Friday.

What are the potential for TIM’s assets?

Due to TIM’s debt burden, KKR may pursue a split strategy to recover its investment.

KKR is trying to spin off TIM’s fixed-line business to create an open access infrastructure group in which national investor CDPs such as Italy’s gas and power grids manage one-third.

People say that grid state management could help overcome opposition from EU competition authorities to Italy’s single network program, TIM’s network assets and CDP-managed rival fiber group OpenFiber’s network assets. Removed the main obstacles to the proposed merger with.

Mediobanca Securities calculated the value of TIM’s assets, including domestic fixed and mobile businesses, Brazil and tower units, and data centers, at € 26 billion before taking into account TIM’s liabilities.

($ 1 = 0.8911 euros)

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Q & A-Why did Telecom Italia get caught up in the excitement of bidding?

Source link Q & A-Why did Telecom Italia get caught up in the excitement of bidding?

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