Markets

KKR buyout offer sends Telecom Italia shares surging 30%

Key Points
  • The non-binding proposal values the former phone monopoly at 0.505 euros per share in cash.
  • This indicates a 45.7% premium on Friday's closing share price, and rises to more than 33 billion euros including debt.
Marc Hill | Bloomberg | Getty Images

Telecom Italia shares jumped more than 30% on Monday after U.S. private equity giant KKR launched a 10.8 billion euro ($12 billion) buyout bid for Italy's largest phone company.

The non-binding proposal values the former phone monopoly at 0.505 euros per share in cash, indicating a 45.7% premium on Friday's closing share price, and rises to more than 33 billion euros including debt.

Telecom Italia's reported gross debt exceeds 29 billion euros, and S&P last week downgraded the company's credit rating further below investment grade level. The buyout offer is reportedly closer to 33 billion euros in total with the debt factored in.

Telecom Italia CEO Luigi Gubitosi has been under pressure from top investor Vivendi after two profit warnings in a single quarter.

The French media titan has long been at loggerheads with U.S. activist hedge fund Elliott Management, a tussle that led to the ousting of Gubitosi's predecessor, Amos Genish, in November 2018.

Prior to the start of trading on Monday, the embattled phone company had seen its share price fall almost 50% over the past five years.

Italy's Treasury said foreign interest in Italian companies is "good news for the country."

The Telecom Italia board, chaired by former Bank of Italy Deputy Governor Salvatore Rossi, met on Sunday to discuss the offer, which was characterized by KKR as "friendly," according to a statement published Monday.

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"For the time being, it is conditional – among others – to an estimated four-week confirmatory due diligence, as well as clearance by key government stakeholders," the statement added.

Deutsche Bank on Monday also said the news was "positive for TI and the wider sector."

"It also shows just how reliant TI is on strategic action, which may be easier served in private hands," said telecoms equity analyst Keval Khiroya.

Victoria Scholar, head of investment at British online stockbroker Interactive Investor, said the bid "signals a broader appeal to deep-pocketed U.S. private equity of the European telecoms sector," and could help to reverse Telecom Italia's recent fortunes.