The fixed telephony division of Telecom Italia, taken over by KKR for 19 billion euros

Telecom Italia recently approved the sale of its landline network to US investment fund KKR for about 19 billion euros, becoming the first telecommunications group from a major European country to divest its landline network, according to Reuters.

The agreement, supported by the Government led by Prime Minister Giorgia Meloni, involves assets that Italy considers to be of national strategic importance.

The sale is a key part of Telecom Italia chief executive Pietro Labriola's plans to revive the debt-ridden former telephone monopoly and rated junk, i.e. a company that cannot afford the investments of which the legacy network needs.

The transaction is expected to be completed next summer and will allow the Italian telecommunications group to reduce its debt by around 14 billion euros.

The company will also lay off half of its 40,000 employees in Italy and focus on service operations.

The sale price of 18.8 billion euros, including debt, could reach 22 billion euros if certain conditions are met, the Italian company said.

In order to oversee assets considered by Italy to be of national strategic importance, the Government authorized the Treasury to invest up to 2.2 billion euros to acquire a 20% stake in the network, alongside KKR, which is already a minority investor. The Treasury controls the second largest investor in the Italian company, state bank CDP.

The decision of the Board of Directors regarding the sale will not be submitted to shareholders for approval, Telecom Italia announced, thus dealing a blow to the main shareholder, Vivendi.

Vivendi, which owns 24% of Telecom Italia, sought a higher price for the sale and considers the Board of Directors' decision illegal. In Vivendi's view, the sale required an extraordinary shareholder vote. Vivendi also wanted the approval of an internal Telecom Italia board committee for related-party transactions, given the Treasury's dual role as owner of the company's shareholder, CDP, and investor in the network.

Telecom Italia's fixed telephone network covers approximately 89% of households in the country and covers an area of 23 million kilometers in this country.

Italy is one of the most competitive telecommunications markets in the world, and competition has intensified in recent years, with the entry of new operators such as Iliad SA. The French operator entered the Italian mobile phone market in 2018, positioning itself as a low-cost operator, which triggered an aggressive price war. As a result, the former monopoly Telecom Italia was left with few options other than selling its landline network to reduce its debts.

In the sale transaction to KKR, Telecom Italia worked with consultants from Goldman Sachs, Mediobanca and Vitale & Co., as well as the law firm Gatti Pavesi Bianchi Ludovici. Citigroup, Morgan Stanley and JPMorgan advised KKR, and UBS advised the Treasury.