Telecom Italia’s KKR deal sparks threat of legal action by Vivendi

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Telecom Italia is being threatened with legal action from Vivendi, its single largest shareholder, after accepting KKR’s offer of up to €22bn for the telecoms group’s fixed-line phone and internet network.

Telecom Italia’s board of directors approved the sale on Sunday in a majority vote. It comes two years after the private equity firm’s first €33bn takeover offer which envisaged taking the company private.

In response, the French media conglomerate said in a statement that it “deeply regrets” the board accepting the offer without requesting a “vote from its shareholders”. It added that it will “use any legal means at its disposal to challenge this decision”.

However, the board said the decision to accept the offer was of its “exclusive competence”. It also mandated chief executive Pietro Labriola to sign contracts and verify the possibility of receiving a binding offer at a higher value for its submarine network Sparkle.

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Under the deal, expected to close next summer, Telecom Italia said it will reduce its €26bn debt pile by around €14bn. The junk-rated company also said the transaction will reduce regulatory constraints in its domestic market, which have hindered its growth, and will help it to maintain strategic flexibility.

Telecom Italia hopes the plan will improve the company’s share price, which has plummeted to €0.26 per share, but it has long been opposed by Vivendi. The conglomerate, owned by the Bolloré family, holds a 23.75 per cent stake and more than 17 per cent of Telecom Italia’s voting rights.

The French group has invested more than €4bn in building the stake over the past eight years and has had to write down its investment twice as Telecom Italia’s valuation has fallen amid high debt, multiple management overhauls, lower margins and increased domestic competition. 

Vivendi has previously rejected plans to separate the network from the group’s services business, saying Telecom Italia had undervalued it. 

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Labriola was put in place, with Vivendi’s backing, two years ago after his predecessor was ousted over KKR’s first offer. He has since become the main sponsor of KKR’s plan to split and turn round the business.

“Two years of hard work with our heads down wrap up with a historic decision which will see the creation of two separate companies with entirely new development perspectives,” he said in a statement.

The Italian government, which can veto deals involving telecommunications infrastructure, greenlighted the deal last month. Rome’s department of the Treasury plans to spend more than €2bn in taking a 20 per cent stake in the network company, alongside KKR, to oversee an asset which it deems strategic.