Italian government interrupts Telecom Italia board meeting to delay sale to KKR
Ministers sent a request for a one-month delay just as executives were about to approve the deal
Milan — The Italian government interrupted Telecom Italia’s board meeting on Tuesday to halt the sale of part of its network to private equity firm KKR, just as executives were about to approve the deal.
KKR was poised to sign the purchase agreement for the former phone monopoly’s secondary network, when ministers sent Telecom Italia chair Salvatore Rossi a request for a one-month delay. The government views the sector as strategic and is keen to create a single ultrabroadband operator, according to people familiar with the matter.
Telecom Italia shares rose as much as 5.2% in Milan trading, outpacing the FTSEMIB Index and the Stoxx 600 Telecommunications index.
Finance minister Roberto Gualtieri and development minister Stefano Patuanelli’s letter to Telecom Italia marks another major intervention by Prime Minister Giuseppe Conte’s government into a decision of a privately listed company. Officials are forcing the Benettons to exit toll-road manager Autostrade, the operator of the bridge in Genoa that collapsed in 2018, killing 43 people.
The request comes as the CEO Luigi Gubitosi is pushing to combine Telecom Italia’s landline grid with Open Fiber. This smaller rival is a government-backed joint venture between Enel, Italy’s largest utility, and state lender Cassa Depositi e Prestiti (CDP).
Telecom Italia’s sale of its secondary network to KKR was to be the first step in this bigger project to put its fixed assets into a separate company with Open Fiber. CDP already owns 10% of the former incumbent and the government’s request was intended to ensure it has a role in the sale of the stake in the secondary network to KKR, the people said.
In recent months, Gubitosi has reiterated that the carrier needs to keep control of the company once the full separation of the landline network is complete, while keeping the assets available for use by competitors. However, the government could ask Telecom Italia to cede control, according to people familiar with the matter.
“The board of directors looked very favourably upon the idea to speed up the single network project and will be enthusiastically taking part in the works the government intends to launch over the next few hours,” Telecom Italia said in a statement. The CEO will “discuss all the relevant aspects with the government authorities”.
A representative for KKR declined to comment. A spokesperson for Telecom Italia declined to comment beyond the company’s statement.
Telecom Italia’s board had gathered late on Tuesday to approve the company’s second-quarter results, and were close to approving the sale to KKR of a 37.5% stake in the portion of its network that covers cables running from the street to premises, the people said. The private equity firm had made a binding offer to pay €1.8bn for the asset.
Swisscom’s Fastweb Italian unit is set to get a 4.5% stake in FiberCop, the company that will hold the secondary network, according to a company presentation published late on Tuesday. The new entity will have an initial enterprise value of €7.7bn.
Both Telecom Italia and KKR agreed to the delay of the stake sale, which will see them postpone the sale of part of the asset until August 31. The phone company’s board will meet again on that date, people said.
The government does not want to interfere with Telecom Italia, but rather demonstrate a strong commitment to promoting a national and integrated network, according to a government official. Telecom Italia’s project is key and the state is taking a broad strategic view on the matter, including the involvement of other institutional and market players, the official said.
Italy also submitted a project to create a single network to the phone company’s board, the official said.
Italy’s largest phone company reported sales of €3.8bn in the second quarter, slightly missing the €3.84bn estimates compiled by Bloomberg.
Net income dropped to €118m from €386m a year earlier as the pandemic hurt footfall and depressed roaming fees. The company said it sees service revenue dropping in the mid-single digits for the full year.
“The government has demonstrated that it wants to get serious on two fronts: to encourage the creation of a single national wholesale infrastructure and to reiterate its willingness to interfere in the management of listed companies in a managerial manner,” said Alberto Carnevale Maffe, professor at Milan’s Bocconi University. “On the first, we will have to see the results.”
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