KKR Flirts With Italian Telecom Acquisition

KKR currently holds a 37.5% stake in TIM’s “last mile” network, and is reportedly mulling a breakup of the group if the deal goes through.

If 2021 was a record year for mergers and acquisitions all over the world, the new year may follow suit. Among the deals that might be finalized in the coming quarters is what could be the most expensive European private equity takeover ever.

Global investment firm KKR launched a friendly €10.8 billion ($12.2 billion) offer to acquire Italy’s largest telecom company, Telecom Italia (TIM), pending due diligence. With TIM’s net debt amounting to €22.2 billion, KKR’s bid would total a record €33 billion. Any final decision will have to wait for TIM’s new business plan, which is due in a few weeks.

KKR currently holds a 37.5% stake in TIM’s “last mile” network, and is reportedly mulling a breakup of the group if the deal goes through.

“The potential acquisition of Telecom Italia by KKR reflects a general trend we are seeing of publicly listed telecoms assets trading very cheaply, compared to what private equity firms would pay on the private market,” explains Alessandra Castelli, content director of Public M&A EMEA at Acuris. “KKR plans to separate TIM’s network, and there is upside from that transaction. Moreover, investors see value in taking the company private. The biggest hurdle of a Telecom Italia/KKR deal is getting the government/FDI approval under Italy’s ‘Golden Power’ rules.”

Indeed, under those rules the Italian government has special antitakeover powers that permit it to veto foreign offers on strategic Italian companies. TIM is considered one of the jewels in the Italian crown, even if it has struggled in recent years, including three profit warnings in 2021 and the departure of its fourth CEO in six years.

TIM’s main shareholders will also have a say in whether such a transaction goes through. French conglomerate Vivendi owns 24% of the group, and state-controlled Cassa Depositi e Prestiti has an additional 10% stake. Both of them could oppose the deal.