Telecom Italia announced on Monday that it has received a binding offer from multi-billion-dollar investment fund KKR to acquire the Italian phone company’s fixed network business. The exact sum of the offer has not been disclosed.
In an effort to reduce its staggering €26 billion ($27.4 billion) debt, Telecom Italia has put its NetCo business up for sale. KKR, a New York-listed fund, is looking to take control of this business.
In addition to the offer for NetCo, KKR has also submitted a non-binding offer for Telecom Italia’s subsea cables subsidiary, Sparkle. Following the completion of due diligence, the fund plans to present a binding offer within the next four to eight weeks.
The validity of KKR’s offer for NetCo has been extended until November 8th, with the option to further extend negotiations until December 20th. Should Telecom Italia accept the terms, KKR will be legally obligated to proceed with the acquisition of NetCo.
The sale of NetCo is a crucial part of Telecom Italia CEO Pietro Labriola’s strategic plan to alleviate the company’s debt burden, which has become increasingly challenging due to higher interest rates.
The Italian Government’s Push for Telecom Infrastructure Upgrade
The Italian government has been exerting increasing pressure on the country’s telecoms companies to enhance their copper networks by replacing them with fibre optic cables, aligning with broader targets set by the European Union.
A Potential Deal with KKR
As part of a potential agreement, Italy’s Treasury signed a memorandum of understanding with KKR in August. The memorandum outlines that the Italian government could acquire a stake of up to 20% in NetCo, a subsidiary of Telecom Italia.
Valuation of NetCo
According to local press reports cited by Domenico Ghilotti from Italian investment bank Equita, NetCo’s enterprise value is estimated to be between €20-€21 billion.
The Creation of FibreCop
In August 2020, Telecom Italia established a separate company called FibreCop, which focuses on its last-mile network. This network connects Italy’s main grid to customers’ homes. Telecom Italia subsequently sold a 37.5% stake in FibreCop to KKR for €1.8 billion.
Telecommunication Infrastructure Holdings
Telecom Italia’s subsidiary, Sparkle, possesses an extensive network of subsea cables spanning 600,000 kilometers. These cables connect various countries across Europe, the Mediterranean, and the Americas.
KKR’s Potential Offer
If approved, KKR’s offer would involve acquiring Telecom Italia’s entire fixed network business in addition to its remaining stake in FibreCop.
Market Performance
Telecom Italia’s stock experienced a 3% decline on Monday, despite having witnessed a significant 48% increase over the past 12 months.
