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After the US private equity giant KKR acquired Italy’s largest telephone company for 10.8 billion euros (12 billion U.S. dollars), the shares of Telecom Italia rose by more than 22% on Monday morning.
This non-binding proposal valued the cash of the former telephone monopoly at 0.505 euros per share, a 45.7% premium to Friday’s closing price, and rose to more than 33 billion euros including debt.
Telecom Italia reported more than 29 billion euros in total debt, and Standard & Poor’s last week further downgraded the company’s credit rating to below investment grade. According to reports, the total value of the tender offer including debt is close to 33 billion euros.
Telecom Italia CEO Luigi Gubitosi has been facing pressure from top investor Vivendi after issuing two profit warnings in a single quarter.
The French media giant has long had a dispute with the American radical hedge fund Elliott Management, which led to the resignation of Gubitosi’s predecessor, Amos Genish, in November 2018.
Before trading started on Monday, the troubled phone company’s stock price had fallen nearly 50% in the past five years.
The Italian Ministry of Finance stated that foreign interest in Italian companies is “good news for the country.”
According to a statement issued on Monday, the board of Telecom Italia, chaired by former Bank of Italy deputy governor Salvatore Rossi, met on Sunday to discuss the proposal. KKR described the proposal as “friendly.”
The statement added: “At present, among other things, it requires approximately 4 weeks of confirmatory due diligence and approval from major government stakeholders.”
Deutsche Bank also said on Monday that the news is “positive for TI and the wider industry”.
Telecommunications stock analyst Keval Khiroya said: “This also shows TI’s reliance on strategic actions, which may be easier to obtain in private hands.”
Victoria Scholar, head of investment at Interactive Investor, an online stockbroker in the United Kingdom, said that the offer “marks a broader appeal to the well-funded US private equity in the European telecommunications industry” and may help reverse the recent fate of Telecom Italia.
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