Competitive interests have created a gnarled puzzle at Telecom Italia. KKR, which has launched a bid to buy the country’s established operator, will be tempted to take a sword to it. The private equity group has a cash offer announced of € 0.505 per share, giving a business value of € 33.2 billion ($ 37.5 billion). That would put a 43 percent premium on Friday’s closing price.
The Italian government’s gold share means the deal will go nowhere without state approval – as previous bidders have discovered. Monday’s rise of 28 percent in the share price, well below KKR’s offer, reflects that doubt. But it is unlikely that KKR will take on the whole of Telecom Italia; his interest is rather in FiberCop, his latest mile fiber broadband network. It acquired a 37.5 percent stake in August for € 1.8 billion last year.
Today, FiberCop generates about 15 percent of Telecom Italia’s € 5.8 billion ebitda, thinks James Ratzer at New Street. It should grow fast. Although the EU boasts an average of 60 percent coverage of high-speed broadband households, only about a quarter of Italians have the same access.
KKR may feel that Luigi Gubitosi, CEO of Telecom Italia, who has been in charge since 2018, has not done enough to encourage FiberCop’s expansion. The company’s board of directors and the stock market may take a similar view. Even after Monday’s sharp jump, shares have fallen nearly a fifth since taking control. Talk about spinning the fiber business has come and gone.
KKR may have in mind a kind of public-private partnership that manages a separate broadband network. It might work, as with the country’s electricity network Terna. But even if Gubitosi and the government have allowed it, there are other minorities within Telecom Italia who have their own plans. This includes the operator’s largest shareholder Vivendi of France, with a stake of 24 percent.
Vivendi has already considered the current offer too low. Meanwhile, another government-backed minority in Telecom Italia, Cassa Depositi e Prestiti, also has a majority stake in FiberCop’s much smaller competitor Open Fiber. CDP presumably likes the idea of merging the broadband operators, but it also appears to have a conflict of interest.
Optics work much better when laid out straight. KKR’s move indicates frustration that it can not unravel its broadband assets from the mix that Telecom Italia is.