KKR has wiggle room to sweeten Telecom Italia bid

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MILAN, Nov 24 (Reuters Breakingviews) – KKR’s (KKR.N) jumbo bid for Telecom Italia (TLIT.MI) could get chunkier. The personal fairness group might have to elevate its 33 billion euro supply for the Italian telecom operator to win over traders Vivendi (VIV.PA) and state-controlled Cassa Depositi e Prestiti (CDP). The deal already seems to be set to be the biggest buyout in European historical past. But the U.S. group can most likely pay extra with out overloading its goal with an excessive amount of debt.

KKR’s offer of 0.505 euros a share has up to now not met opposition from the Italian authorities or the nation’s feisty unions. Yet the bid didn’t go down nicely with French investor Vivendi learn extra , which owns 24% of Telecom Italia’s abnormal inventory, and paid on common 1 euro for every share. For CDP, which owns 10%, the common buy worth was most likely shut to 0.70 euros a share.

That means the U.S. buyout store could have to pay greater than the ten.8 billion euros at present on supply. But the aggressive Italian telecom market and Telecom Italia’s debt pile, equal to round 3.5 instances 2021 EBITDA as per Refinitiv information, means KKR can’t use an excessive amount of additional borrowing to fund the deal. It helps that the majority of Telecom Italia’s bonds don’t have change of management clauses, which means they don’t want to be refinanced when the deal closes.

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Assume KKR lifts its supply to 0.70 euros a share, valuing Telecom Italia’s fairness at round 15 billion euros and the corporate together with debt at simply over 37 billion euros. It might elevate maybe 9 billion euros of additional borrowing, whereas nonetheless protecting gearing at an affordable 5 instances 2021 EBITDA, or about 32 billion euros. KKR would nonetheless want to give you almost 6 billion euros of fairness. That’s quite a bit, however not unprecedented, particularly if different funds joined in. Advent and Cinven’s acquisition of Thyssenkrupp’s (TKAG.DE) elevator enterprise, for instance, concerned an fairness examine of over 7 billion euros.

KKR would even have methods to rapidly decrease the debt. It might promote Telecom Italia’s stake in towers firm Inwit (INWT.MI), which might elevate at the least 1.5 billion euros, or trim its 67% stake in its Brazilian arm, price about 3.6 billion euros. KKR, which is investing by means of its infrastructure fund, could ultimately choose not to use a lot debt. Either approach, the group does have some wiggle room to pay extra.

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CONTEXT NEWS

– KKR is contemplating boosting its 10.8 billion euro supply for Telecom Italia to win over high investor Vivendi, Bloomberg reported on Nov. 23.

– The U.S. buyout agency has supplied to pay 0.505 euros per share for the Italian telecom group, valuing it at about 33 billion euros together with debt. If profitable, it will be the biggest personal equity-backed buyout deal in Europe, in accordance to Refinitiv information.

– Shares in Telecom Italia have been up 9% at 0.4689 euros per share at 0957 GMT on Nov. 24.

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Editing by Neil Unmack, Karen Kwok and Oliver Taslic

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The Telecom Italia logo is seen in Milan, Italy, May 25, 2016. REUTERS/Stefano Rellandini