Telecom Italia: KKR calling
Mario Draghi holds the keys to Europe’s largest-ever leveraged buyout.
Italy’s prime minister can call upon so-called golden power rules to block KKR’s proposed €33bn buyout offer for Telecom Italia (TIM). The deal would be the largest leveraged buyout since 2007 when KKR, TPG and Goldman Sachs took Texas power company TXU private for $48bn.
TIM was a direct beneficiary of the European Central Bank’s largesse under Draghi’s “whatever it takes” gambit. After Draghi’s measures, struggling companies like TIM were able to muddle through by raising cheap debt.
The central bank bought the company’s bonds under its quantitative easing programme. Since the bonds have no change of control protection, there is some irony that current bondholders, the ECB included, would stand to be clobbered if Draghi signed off on a buyout for which KKR raised new secured debt.
KKR’s offer is the latest twist in the turbulent corporate history of the struggling telecoms group, which involves aborted takeover attempts by Telefónica and AT&T and a battle for control between Vivendi and Elliott Management.
TIM boss Luigi Gubitosi has been under pressure, with two profit warnings and a falling share price. Vivendi, which owns a 24 per cent stake, had been agitating for his removal, and a board meeting had been planned for November 26 to discuss a potential management overhaul.
Could a deal with KKR, which already holds a 37.5 per cent stake in TIM’s “last mile” network, be a last-ditch rabbit-in-a-hat solution for Gubitosi? “I don’t think KKR is in the business of playing the rabbit,” one adviser following the situation told DD.
Any deal involving the knotty puzzle that is TIM would be complicated to pull off, Lex notes.
Still, it is one of several reminders that the era of the private equity mega-deal is back.
This month alone there has been Hellman & Friedman and Bain Capital’s $17bn acquisition of healthcare tech company Athenahealth and Advent International’s talks with antivirus software company McAfee over a $14bn deal.
The private equity industry doesn’t like to be reminded of the TXU deal. By 2014, the company had filed for bankruptcy, in a disaster that seemed to symbolise the worst excesses of the buyouts boom.