Thursday, 02 December 2021

KKR targets TIM takeover for €10.8bn

by Harry Baldock, Total Telecom
Monday 22 November 21

The US investment fund submitted the bid at a price of €0.505 per share, a 45.7% premium on the shares’ closing price on Friday

In recent years, TIM has faced something of an uphill battle in its home market, with the company facing increasingly stiff domestic competition and expensive rollout costs for 5G and fibre networks. Combined, these factors have seen the company’s share price decline significantly, with the company recently forced to issue profit warnings for the second quarter in a row. As a result, CEO Luigi Gubitosi has found himself under siege from the company’s largest single shareholder…

In recent years, TIM has faced something of an uphill battle in its home market, with the company facing increasingly stiff domestic competition and expensive rollout costs for 5G and fibre networks. Combined, these factors have seen the company’s share price decline significantly, with the company recently forced to issue profit warnings for the second quarter in a row.

As a result, CEO Luigi Gubitosi has found himself under siege from the company’s largest single shareholder, French media company Vivdeni, who are pushing the board to implement major turnaround plans.

Gubitosi, who was appointed as CEO of TIM in 2018, has attempted to bolster TIM’s earnings primarily through the introduction of more expensive consumer packages, such as bundling fibre with mobile, video streaming, and gaming products. 

This strategy has largely failed, with TIM last month again reporting results below analyst expectations, forcing TIM to lower its guidance until 2023. 

Now, with company finances squeezed and its leadership being questioned, US private equity firm KKR have presented the company with a ‘friendly’ €10.8 billion offer to take the business private. 

The offer is a 45.7% premium on the company’s closing share price last week.

KKR would also have to assume TIM’s €29 billion debt.

The strategy behind this takeover offer is fairly clear. Throughout Europe and beyond, telecoms companies have been spinning off their valuable infrastructure units and KKR would seemingly like to pursue the same goal here for TIM’s fixed line network.

Last year, KKR purchased a 37.5% stake in the company’s ‘last mile’ fibre network, FiberCop, for €1.8 billion and has since made a bid for the entire company. 

However, according to sources, Vivendi is unlikely to support KKR’s offer, which it views as too low given the company’s perceived value. 

A meeting of board members has been called to assess the offer with sources suggesting that Vivendi could seek the removal of TIM’s Gubitosi as part of broader turnaround plans, rather than submit to the buyout. 

TIM Brasil’s CEO, Pietro Labriola, could be a possible internal replacement for Gubitosi, though chief revenue officer Stefano Siragusa and Vodafone’s Aldo Bisio, CEO of the company’s Italian unit, are also potential fits. 

In contrast to Vivendi, however, the Italian government is reportedly looking favourably on the deal, with the Treasury saying foreign interest in Italian businesses was “positive news for the country”.

It is worth noting that the Italian government has so-called ‘golden powers’ to veto deals in which foreign investors attempt to purchase key national infrastructure, hence these comments are sure to be encouraging to KKR. Nonetheless, the government’s overall approval of the deal will likely rest on the specifics of KKR’s plans for TIM’s fixed line assets. 

TIM could yet have even more to think about, with reports suggesting that the offer from KKR has also seen increased interest from rival funds, such as CVC and Advent, who could be formulating counteroffers. 

If the deal does ultimately go ahead, it will be one of the five largest telecoms deals this year and one of the largest purchases ever to take place in Europe by a private equity firm.

 

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