KKR's $12 billion bid for Telecom Italia faces Vivendi opposition

France’s Vivendi SE is likely to oppose a 10.8 billion-euro ($12.2 billion) bid by U.S. private equity giant KKR & Co. for Telecom Italia SpA amid a battle over top management at the Italian phone carrier. 

Vivendi, Telecom Italia’s largest shareholder, is currently unlikely to support KKR’s offer, which it views as undervaluing the company, according to people with direct knowledge of the situation. The French company will also analyze the reasons behind the bid, including whether KKR was brought in by embattled Chief Executive Officer Luigi Gubitosi, they said. 

Gubitosi’s drive to boost premium services has failed to reverse a precipitous decline in Telecom Italia’s shares and he’s been under mounting pressure from top shareholder Vivendi to accelerate turnaround plans ever since he issued a surprise profit warning last month. 

Telecom Italia shares rose as much as 30% in Milan on Monday following the takeover offer from KKR. The company’s bonds fell sharply, with notes due May 2026 dropping 3.3 cents to 103.5 cents, the lowest level since May 2020, according to CBBT prices. 

The Italian company’s internal nomination committee has hired executive search specialist Spencer Stuart Inc to look for possible candidates to replace Gubitosi and other top Telecom Italia managers, with the aim of building a potential succession plan that could please all shareholders including Vivendi, people familiar with the situation said.  

Preliminary Offer 

 

KKR’s preliminary cash offer of 50.5 euro cents a share, announced over the weekend, is “non-binding and indicative,” Telecom Italia’s board said in a statement Sunday after meeting to consider the proposal.  

Telecom Italia board members called a new meeting to discuss company strategies on Nov. 26, people familiar with the matter said. At that meeting Vivendi could seek to replace Gubitosi, the people said. 

Telecom Italia’s Brazil unit CEO Pietro Labriola is seen as a possible internal replacement for Gubitosi, as is Chief Revenue Officer Stefano Siragusa, according to the people. External candidates include Aldo Bisio, who heads Vodafone Group Group PLC’s Italian unit, they said. 

Labriola, Bisio and Siragusa weren’t immediately available for comment. A representative for Vodafone declined to comment. 

A spokesman for Vivendi in Paris reiterated that the company is and has always been a long-term shareholder in Telecom Italia and that it will continue working closely with Italian authorities to assure its success. The representative declined to comment further on the bid.  

The French company’s 24% stake in Telecom Italia was acquired at an average cost of 1.03 euros, Bloomberg Intelligence analyst Erhan Gurses wrote in a note before the board statement, saying that may create an “insurmountable obstacle.” 

In a statement following the board meeting, the government led by Mario Draghi said the interest from KKR is “good news” for the country, but noted that it will ultimately be up to the market to assess the quality of the bid. Rome said it will carefully review any plan affecting Telecom Italia’s network and will create a special group to monitor the offer. 

Government Reaction 

The government’s “encouraging” reaction shows concerns about Telecom Italia’s ability to deliver on residential fiber to the premises (FTTP) plans, Jefferies analyst Jerry Dellis wrote in a note, adding that KKR’s approach illustrates buyout firms’ ambition and ability to seize on public-market value opportunities in the telecommunications sector. 

KKR’s move underscores governance problems at the Italian company, the worst-performing stock in the FTSE MIB Index in the past six months, said the person familiar with Vivendi’s likely objections. These problems range from bad handling of profit warnings, a lack of strategic vision and an incapacity to find solutions for the company’s network, the person said. 

The deal would rank as one of the five biggest transactions in the telecommunications this year and would be one of the largest telecommunications purchases ever in Europe by a private equity firm. 

Gubitosi’s strategy to revive earnings has focused on trying to sell more expensive subscription packages that bundle fiber broadband with streaming, video gaming and mobile connections. The company last month reported third-quarter earnings slightly below analyst estimates and lowered its targets through 2023.