KKR Offers EUR 0.505 to Take Telecom Italia Private, a 44% Premium; FVE Raised to EUR 0.45

The rumors of a potential takeover of Telecom Italia have finally been confirmed, as private equity firm KKR yesterday made a friendly offer to acquire Telecom Italia for EUR 0.505 per share (all cash), which represents a 44% premium to the Nov. 19 closing price of EUR 0.35 and a 26% premium to our previous EUR 0.40 fair value estimate. Although in our opinion the tender offer is more than fair for Telecom Italia’s shareholders, shares haven't yet reached the offer price and are trading at about EUR 0.43 at the time of the writing, as the offer still needs approval from the board of directors and Italian government, which has a veto right as telecom assets are considered of strategic importance. We're raising our fair value estimate to EUR 0.45 per share from EUR 0.40, implying a 50% chance of approval. Some media also reported that Vivendi, Telecom Italia’s largest shareholder with almost 25% of the firm and which appoints two out of 15 directors of the board, could consider the offer as insufficient. This is, in our opinion, the higher source of uncertainty as Vivendi has been the main protagonist of corporate disagreements in the past.