CVC throws Telecom Italia an uncomfortable lifeline

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CVC throws Telecom Italia an uncomfortable lifeline
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It is in line with the disintegration plan of the CEO of the operator, but it could frustrate KKR’s attempt to exclude the entire company from the Stock Exchange

CVC offers Telecom Italia an uncomfortable lifeline. It wants to buy up to 49% of the operator’s business services branch, which it values ​​at 6,000 million. The non-binding offer helps new CEO Pietro Labriola, who needs money to reduce debt. But it could thwart KKR’s attempt to delist the entire company.

The appearance of CVC expands the cast of the TIM telenovela. With a market value of $7 billion and $22 billion of net debt, it has been in limbo since KKR announced in November that it wants to buy it for $10.8 billion, a prelude to a likely spin-off of its network and services businesses. The offer, which is strongly opposed by Vivendi, the main shareholder, has not yet seen the light of day. Meanwhile, Labriola tries to carry out his own disruptive plan.

The delays have given CVC a choice. He aspires to the division that serves TIM’s large corporate clients, which generates 2,900 million annual revenues and 800 million Ebitda. In particular, it includes cloud and cybersecurity services, which offer higher margins than telephony.

With 6,000 million, including debt, the offer values ​​the company at 7.5 times its EBITDA, above the multiple of 5 with which European telecoms are listed. Some $500 million of annual investment, essential to taking on online giants like Amazon and Microsoft, makes the valuation look even more robust. The hope is that, fully formed and listed, it can approach the 15 times that of internet service providers such as OVH.

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CVC’s approach is a relief to Labriola, who is struggling to win broad market support for his plan. But letting go of much of the business may dampen KKR’s enthusiasm for the unpopular project. In addition to Vivendi’s opposition, the fund has yet to secure the support of the Italian government.

If KKR walks away, TIM investors will be left with only Labriola’s untested aspirations. Even if he succeeds, his day to cash it out is likely years away.