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Telecom Italia: Will the Board of Directors call for the help of the changes?

Luigi Gubitosi is committed to making Telecom Italia a “Ordinary company” capable of implementing a recovery plan when in 2018 he became the company’s fifth chief executive officer in six years.

Instead, his three-year anniversary in the post is marked by resignation, failed to fulfill this simple ambition, and after a week of drama after the Italian telecommunications group received a Offer to take over 33 billion euros from US private equity firm KKR.

In a letter to the board ahead of its extraordinary meeting last Friday afternoon, Gubitosi offered to give up in order to facilitate negotiations with the US buyout fund. At the end of the day, he was replaced by Pietro Labriola, head of Telecom Italia’s Brazil division, although his successor has been given the title of general manager and Gubitosi will remain on the board.

“I’m very satisfied [with] Labriola’s date,” Rossi said.

But with the management overhaul showing neither continuity nor complete respite, Telecom Italia’s future remains unclear and trading activity in Europe’s telecommunications sector heating up.

KKR’s offer earlier this month sent shockwaves through Italian industry and politics. If successful, the takeover will be the biggest private equity acquisition in European history and represents the industry’s boldest attempt to break one of the continent’s former telecommunications monopolies.

The US group signaled its interest in the telecommunications sector when it made a surprise bid for Dutch incumbent KPN earlier this year. that was denied.

Telecom Italia is a much bigger prize. But the obstacles to a deal are sizable: among them is uncertainty over whether the Italian government – whose shares are almost 10% held by state investor Cassa Depositi e Prestiti – will approve. or not, the sheer size of the group and its sluggish performance, and the bids of potential competitors from other PE firms.

The role of Vivendi, Telecom Italia’s largest shareholder with a 24% stake, is also important. The price KKR offered, about half the average it paid to build its holdings in 2016, is too low, according to analysts, according to analysts.

The French conglomerate planned to push for a vote of no confidence in Gubitosi during Friday’s board meeting, according to several people with knowledge of the negotiations, due to dissatisfaction with the poor performance. of Telecom Italia. Several other board members have also requested the meeting to discuss Gubitosi’s future, according to the people.

Vivendi and KKR declined to comment.

The price movement line chart in Milan since 2016 (€) shows Telecom Italia shares falling

The bid from KKR comes after a tough year for Telecom Italia. The team issued two profit warnings in a row, Complex merger plan with rival Open Fiber appears to have run aground and the contract to broadcast football with UK-based platform DAZN, promoted by Gubitosi, has not turned out to be as profitable as shareholders had hoped. Shares of Telecom Italia have fallen nearly 40% between the time Gubitosi took power and before KKR’s offer.

KKR’s offer of €0,505 for a cash share sold for 44% more than the company’s previous closing price, yielding an equity value of €10.7 billion . The telecom group has about 22.5 billion euros in net debt.

Its proposal involved breaking up Telecom Italia and operating the network through a company controlled by Cassa Depositi e Prestiti, which also owns a stake in Open Fiber.

Mario Draghi, Italy’s prime minister, said at a press conference in Rome last week that the government’s priority will be to protect Italian jobs, technology and networks. He set up a working group of key ministers to consider Telecom Italia’s options.

“This offer is good news for the country as it means that the mood of foreign investors has changed in a positive direction,” said a government official. “But nothing has been decided yet as there is nothing substantial on the table for us to assess right now.”

The government has a so-called “golden power” to block a takeover if it is deemed not in the national interest.

The KKR faces stiff opposition from several quarters of Italy’s parliament, including populist leader Matteo Salvini, and security agencies concerned about its ability to sell a strategic national asset.

CEO Luigi Gubitosi pledged to make Telecom Italia a ‘normal’ company when he took over in 2018 © Charlie Bibby / Financial Times

So far, Draghi has refused to get involved directly and there are conflicting views within his government about the best path forward, according to three cabinet members. Coincidentally, it includes one of the greatest traders of European telecommunications – Vittorio Colao, minister of innovation and digital transformation and one of Rome’s key interlocutors with Brussels.

Former Vodafone CEO Negotiated 135 billion dollar discount the UK company’s stake in Verizon Wireless as well as Liberty Global’s €19 billion acquisition of central European assets. He declined to comment on KKR’s approach.

KKR’s involvement has attracted the interest of rival private equity groups, some of whom have also spent a long time pondering how the vast fortunes could be generated. manufactured and put into private use.

Luxembourg acquisition group CVC Capital Partners and US group Advent International are “open” in discussions, CVC said, despite KKR’s stake in Fibercop, Telecom Italia’s ‘last mile’ network , which can complicate matters further.

Vivendi has denied negotiating with the funds and reiterated that it wants to be “a long-term investor in Telecom Italia”.

Olivetti, Deutsche Telekom, AT&T, Telefónica and Vivendi are among the companies that have tried to buy or take control of Telecom Italia over the past two decades.

An Italian telecom company executive called the offer a “wake-up call” to a sector struggling to grow.

Telecom Italia’s market capitalization fell to €7.5 billion ahead of KKR’s offer. That reflects the declining financial performance of an incumbent company that is facing fierce competition in the domestic market from Vodafone, CK Hutchison’s Wind Tre and Iliad, run by the French billionaire. Xavier Niel takes control.

Revenue for the first nine months of the year fell 2% to 11.4 billion euros but pre-tax profit fell 85% to 167 million euros. Standard & Poor’s downgraded Telecom Italia’s debt rating to below investment grade last week.

Maurice Patrick, an analyst with Barclays, said it is still difficult to judge whether KKR’s plans have a better chance of success without more detail on its strategy. “The end game is still uncertain,” he said. “A simple takeover of existing equity will only add more debt to the structure, which is not a constraint that TI needs.”

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