Telecom Italia's top investor says its 'shareholder rights have been trampled' as it vows to take legal action to block KKR's $24 billion deal

By Louis Goss

Telecom Italia's (IT:TIT) top shareholder has vowed to "use any legal means at its disposal" to block the Italian phone company from selling its fixed infrastructure assets to U.S. private equity giant Kohlberg Kravis Roberts & Co (KKR) for nearly $24 billion.

In a statement, Vivendi (FR:VIV), which owns a 23.75% stake in Telecom Italia, spoke out against the phone company's decision to accept KKR's offer as it called the board's decision "unlawful".

The French media company, which owns video sharing platform Dailymotion and film company Groupe Canal+, had previously raised concerns over the price being offered and the sustainability of the business left behind.

Now, Vivendi is arguing any decision to approve the deal should have been put to a shareholder vote. The Parisian firm said "shareholders' rights have been trampled on" as it argued the Telecom Italia's board had breached corporate governance rules.

Vivendi, which is backed by French billionaire Vincent Bolloré, had previously argued Telecom Italia's fixed infrastructure assets should be valued at EUR30 billion.

Vivendi's opposition follows the decision by Telecom Italia's board on Sunday, to approve KKR's offer to take control of its fixed infrastructure business, called NetCo, and its fiber optics services divisions, in a deal worth up to EUR22 billion ($23.7 billion).

The phone company's board, however, rejected KKR's bid to buy its subsea cables company, Sparkle, as it called on the fund to offer a higher price. Telecom Italia says it expects to close the deal by summer 2024.

Plans to sell off Telecom Italia's assets sit at the center of company CEO Pietro Labriola's push to cut the company's EUR26 billion debt pile, as higher interest rates have seen repayments become increasingly unmanageable.

The Italian government, under prime minister Giorgia Meloni, has also backed the deal, as it pushes ahead with plans to replace the country's ailing copper telecoms networks with high speed fiber optics infrastructure, in line with targets set by the European Union.

KKR's deal would transform Telecom Italia into a more streamlined operation, focused on the selling of phone services in Brazil and Italy.

In October, London investment firm Merlyn Advisors, which owns a 3% stake in Telecom Italia, put forward an alternative debt reduction plan that would see the Italian firm keep hold of its fixed infrastructure assets and instead sell its domestic retail segment and Brazilian subsidiary.

In a letter from November 1, Vivendi previously called on Telecom Italia to consider Merlyn Advisor's alternative debt-reduction plans, according to Reuters.

Shares in Telecom Italia fell 4% on Monday, having risen 4% over the previous 12 months.

Vivendi's statement follows repeated clashes between the French media company and the board of Telecom Italia, that in July 2017 led to the exit of the phone company's former CEO Flavio Cattaneo.

Deutsche Bank, led by Robert Grindle, noted a report in Italian financial newspaper Il Sole, which said Vivendi would be open to selling its stake in Telecom Italia for EUR0.5 per share. Shares in Telecom Italia are currently trading at EUR0.25 per share. The analysts said Vivendi's opposition to the deal "may be designed to create pressure for someone else to buy Vivendi's stake."

-Louis Goss

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11-06-23 0618ET

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