Telecom Italia’s stock rose more than 30% on Monday after KKR, a private equity firm based in the United States, announced an offer for the country’s largest phone provider worth 10.8 billion euros ($12 billion).
The non-binding plan values the former phone monopoly at 0.505 euros per share in cash, a 45.7 percent premium over Friday’s closing share price, and more over 33 billion euros when debt is included in.
Telecom Italia has a stated gross debt of more than 29 billion euros, and S&P cut the company’s credit rating below investment grade last week. With the debt factored in, the buyout bid is said to be closer to 33 billion euros in total. After two profit warnings in a single quarter, Telecom Italia CEO Luigi Gubitosi has come under fire from main investor Vivendi.
Gubitosi’s predecessor, Amos Genish, was ousted in November 2018 after a protracted spat with Elliott Management, a U.S. activist hedge fund.
Prior to the commencement of trade on Monday, the beleaguered phone company’s stock had dropped nearly 50% in the previous five years.
Foreign involvement in Italian firms, according to the Italian Treasury, is “excellent news for the country.” According to a statement released Monday, the Telecom Italia board, led by former Bank of Italy Deputy Governor Salvatore Rossi, met on Sunday to examine the offer, which KKR described as “friendly.”
“For the time being, it is subject to a four-week confirmatory due diligence period, as well as clearance from key government stakeholders,” the statement continued.
The announcement was also “good for TI and the larger sector,” according to Deutsche Bank on Monday.
“It also illustrates how reliant TI is on strategic activity, which may be better served in private hands,” said Keval Khiroya, a telecommunications stock analyst. The proposal “signals a greater appeal to deep-pocketed U.S. private equity of the European telecoms sector,” according to Victoria Scholar, head of investment at British online stockbroker Interactive Investor, and might help Telecom Italia reverse its recent fortunes.