Telecom Italia: will the overhaul of the board of directors contribute to the changes?

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Luigi Gubitosi pledged to make Telecom Italia a “normal business” capable of executing a recovery plan when in 2018 he became its fifth CEO in six years.

Instead, his third anniversary in the post was marked by his resignation, failing to deliver on that simple ambition and after a week of drama after the Italian telecommunications group received a $ 33 billion takeover offer. euros from the US private equity firm KKR.

In a letter to the board ahead of a special meeting last Friday afternoon, Gubitosi offered to step down to facilitate talks with the US buyout fund. At the end of the day, he had been replaced by Pietro Labriola, head of the Brazilian division of Telecom Italia, although his successor was awarded the title of managing director and Gubitosi remains on the board of directors.

“I am very satisfied [with] The appointment of Labriola, ”said Rossi.

But with the management overhaul, which represents neither continuity nor a complete break, the future of Telecom Italia remains uncertain as negotiations in the telecommunications sector in Europe intensify.

KKR’s offer earlier this month sent shockwaves through Italian industry and politics. If successful, the buyout would be the largest private equity buyout in European history and represent the industry’s most daring attempt to break one of the continent’s old telecommunications monopolies.

The American group had already shown its interest in telecoms when it made a surprise offer for the Dutch incumbent KPN earlier this year, which was rejected.

Telecom Italia is a much higher price. But the obstacles to a deal are sizeable: among them, uncertainty over whether the Italian government – which owns nearly 10 percent of the shares held by public investor Cassa Depositi e Prestiti – will approve the size of the group and its poor performance, and potential competing offerings from other private equity firms.

The role of Vivendi, Telecom Italia’s largest shareholder with 24% of the capital, is also crucial. He has already estimated that the price offered by KKR, about half of the average he paid to build his stake in 2016, analysts say, is too low.

The French conglomerate had planned to impose a vote of no confidence on Gubitosi at Friday’s board meeting, according to several people familiar with the talks, due to discontent over Telecom Italia’s poor performance. Several other board members had also requested the meeting to discuss Gubitosi’s future, according to the population.

Vivendi and KKR declined to comment.

KKR’s offer follows a deadly year for Telecom Italia. The group has issued two profit warnings in succession, a complex merger plan with rival Open Fiber appears to have failed and a football broadcast deal with UK platform DAZN, pushed by Gubitosi, has not been as profitable as the shareholders had hoped so. Telecom Italia’s stock had fallen nearly 40% since taking over Gubitosi and before the offering from KKR.

KKR’s offer of € 0.505 per share in cash came with a 44% premium over the company’s previous closing price, giving it a net worth of € 10.7 billion. The telecoms group has around 22.5 billion euros in net debt.

Its proposal is to dismantle Telecom Italia and operate the network through a company controlled by Cassa Depositi e Prestiti, which also has a stake in Open Fiber.

Mario Draghi, the Italian Prime Minister, told a press conference in Rome last week that the government’s priority would be to protect Italian jobs, technology and the network. He established a working group made up of key ministers to examine Telecom Italia’s options.

“The offer is good news for the country as it means that the mood of foreign investors has positively changed,” a government official said. “But nothing has been decided as there is nothing substantial on the table to assess at the moment.”

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

The KKR faces stiff opposition from parts of the Italian parliament, including populist leader Matteo Salvini, and from the security services concerned about the potential sale of a strategic national asset.

Managing Director Luigi Gubitosi pledged to make Telecom Italia a “normal” company when he took office in 2018 © Charlie Bibby / Financial Times

So far, Draghi has refused to get involved directly and opinions differ within his government on the best way forward, according to three cabinet members. Coincidentally, it includes one of the largest European telecoms contractors – Vittorio Colao, Minister of Innovation and Digital Transition and one of Rome’s main interlocutors with Brussels.

The former Vodafone CEO negotiated the sale of the British company’s $ 135 billion stake in Verizon Wireless as well as the € 19 billion buyout of Liberty Global’s assets in central Europe. He declined to comment on KKR’s approach.

KKR’s involvement has already sparked interest from rival private equity groups, some of whom have also given considerable thought to how the juggernaut could be carved up and private.

Luxembourg buyout group CVC Capital Partners and US group Advent International are “open” to discussions, CVC said, although KKR’s stake in Fibercop, Telecom Italia’s “last mile” network, may complicate matters.

Vivendi denied being in talks with the funds and reaffirmed that it wanted 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 telecommunications executive called the offer a “wake-up call” for a sector struggling to generate growth.

Telecom Italia’s market capitalization had fallen to 7.5 billion euros before the KKR offer. This reflects a deterioration in the financial performance of an incumbent which faces fierce competition in its home market of Vodafone, Wind Tre of CK Hutchison and Iliad, controlled by French billionaire Xavier Niel.

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

Maurice Patrick, analyst at Barclays, said it remains difficult to judge whether KKR’s plans have a better chance of success without further details on its strategy. “The end of the game remains uncertain,” he said. “A simple takeover of the current equity capital would only add debt to the structure, which is not a constraint that TI needs.”


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