France's Vivendi SE is likely to oppose an offer by US private equity giant KKR & Co for €10.8 billion ($12.2 billion) for Telecom Italia SpA amid a battle over the Italian phone company's top management.
Vivendi, Telecom Italia's largest shareholder, is now unlikely to back KKR's offer, which people with direct knowledge of the situation say undervalues the company. They say the French company will also analyse the reasons for the offer, including whether an irate CEO Luigi Gubitosi would attract KKR.
Gubitosi's drive to expand premium services has failed to reverse a sharp fall in Telecom Italia shares, and he has been under increasing pressure from major shareholder Vivendi to accelerate its recovery plans since it issued a surprise profit warning last month.
Shares in Telecom Italia, according to https://exness-ex.com/login/, rose 30% in Milan on Monday following a takeover offer from KKR. The company's bonds fell sharply, with notes due May 2026 falling 3.3 cents to 103.5 cents, the lowest level since May 2020, according to CBBT prices.
The Italian company's internal appointments committee has hired executive recruiter Spencer Stuart Inc to search for possible candidates to replace Gubitosi and other top Telecom Italia executives to create a potential succession plan that would appeal to all shareholders, including Vivendi, people familiar with the situation said.
KKR's preliminary cash offer of 50.5 euro cents per share, announced over the weekend, is "non-binding and indicative," Telecom Italia's board said in a statement Sunday after meeting to consider the offer.
Telecom Italia board members have called a new meeting to discuss the company's strategy on 26 November, sources familiar with the matter said. People said Vivendi could try to replace Gubitosi at that meeting.
Telecom Italia Brazil CEO Pietro Labriola is seen as a possible internal replacement for Gubitosi, as is revenue director Stefano Siragusa, according to the people. External candidates include Aldo Bisio, who heads Vodafone Group PLC's Italian unit, they said.
Labriola, Bisio and Siragusa were not immediately available for comment. A Vodafone spokesman declined to comment.
A Vivendi spokesman in Paris confirmed that the company is and always has been a long-term shareholder in Telecom Italia and that it will continue to work closely with the Italian authorities to ensure success. The spokesman declined to comment further on the bid.
The French company's 24% stake in Telecom Italia was acquired at an average price of €1.03, Bloomberg Intelligence analyst Erhan Gurses wrote in a note before the board statement, noting that this could create an "insurmountable obstacle".
In a statement after the board meeting, the government, led by Mario Draghi, said the interest from KKR was "good news" for the country, but noted that it would ultimately be up to the market to assess the quality of the offer. Rome said it would scrutinise any plan relating to Telecom Italia's network and would set up a dedicated team to monitor the proposal.
Government response
"The government's "encouraging" reaction demonstrates concern about Telecom Italia's ability to deliver residential fibre to the premises (FTTP), Jefferies analyst Gerry Dellis wrote in a note, adding that KKR's approach illustrates the ambition of buyout companies and their ability to leverage public resources. market value opportunities in the telecoms sector.
The move by KKR highlights governance problems at the Italian company, whose shares have fared the worst in the FTSE MIB index over the past six months, said a person familiar with Vivendi's likely objections. These problems range from poor handling of profit warnings, a lack of strategic vision and a failure to find solutions for the company's network, the person said.
The deal will be one of the top five telecoms deals this year and will be one of the largest telecoms deals ever made in Europe by a private equity firm.
Gubitosi's revenue recovery strategy has focused on trying to sell higher-priced subscription packages that combine fibre broadband with streaming, video games and mobile connections. Last month, the company reported third-quarter earnings that were slightly below analysts' estimates and lowered its targets to 2023.
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