KKR puts forward offer to buy Telecom Italia's fixed-network business

By Louis Goss

Telecom Italia on Monday said multi-billion-dollar investment fund KKR had put forward a binding offer to buy out the Italian phone company's fixed network business for an undisclosed sum.

The deal would see the New York-listed fund (KKR) take control of Telecom Italia's (IT:TIT) NetCo business after Italy's top phone company put it up for sale, in its push to cut its burgeoning EUR26 billion ($27.4 billion) debt.

KKR's bid included a non-binding offer for Telecom Italia's subsea cables subsidiary, Sparkle, with a view to putting forward a binding offer within the next four to eight weeks, following the completion of due diligence.

The New York fund's offer for NetCo is now valid until Nov. 8, with the possibility to extend negotiations until Dec. 20. KKR's binding offer means the investment fund will be legally obliged to buy NetCo if Telecom Italia accepts its terms.

Plans to sell off NetCo sits at the centre of Telecom Italia CEO Pietro Labriola's push to reduce the company's debt pile, as its debt burden has become increasingly unmanageable in the face of higher interest rates.

The plans also come as the Italian government has in recent years placed mounting pressure on the country's telecoms companies to upgrade their copper networks by replacing them with fibre optic cables, in line with wider European Union targets.

The offer comes after Italy's Treasury in Aug. signed a memorandum of understanding with KKR through which the Italian government would take a stake of up to 20% in NetCo as part of a possible deal.

Citing local press reports, Domenico Ghilotti from Italian investment bank Equita said the deal puts NetCo's enterprise value at EUR20-EUR21 billion.

In Aug. 2020, Telecom Italia carved out its last-mile network -- covering connections between Italy's main grid and customer's houses -- into a separate company, called FibreCop, of which it then sold a 37.5% stake to KKR for EUR1.8 billion.

Telecom Italia's wholly-owned subsidiary Sparkle owns 600,000 kilometers of subsea cables between countries in Europe, the Mediterranean and the Americas, according to information on its website.

If approved, KKR's offer would see the fund take over the entirety of Telecom Italia's fixed network business alongside its remaining stake in FibreCop.

Shares in Telecom Italia fell 3% on Monday with stock in the company having increased 48% over the previous 12 months.

-Louis Goss

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10-16-23 0721ET

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