KKR Proposes EU Fixes for €22B Telecom Italia Bid

KKR to propose EU remedies for its €22 billion Telecom Italia deal, aiming for early approval and addressing competition concerns.

By Bill Bullington

5/15, 09:52 EDT
KKR & Co. Inc.

Key Takeaway

  • KKR proposes EU remedies for its €22 billion Telecom Italia deal to address competition concerns, aiming for June approval.
  • Telecom Italia shares surged 3.6%, reflecting market optimism about the deal's potential benefits and smooth regulatory process.
  • The deal includes a provision for Italy’s Finance Ministry to acquire up to a 20% stake, aligning with national interests.

KKR's Strategic Move for Telecom Italia

KKR & Co. is set to propose a series of commitments to the European Union to secure early approval for its ambitious €22 billion ($23.8 billion) acquisition of Telecom Italia SpA’s land-line network. This move is anticipated to address the EU's concerns regarding potential price increases in the wholesale telecom market, aiming for a deal approval by June. The proposed remedies, which are expected to be filed next week, highlight KKR's proactive approach to regulatory compliance and its efforts to ensure a smooth transaction process.

Telecom Italia's shares saw a significant uptick, rising 3.6% in Milan, outperforming the country's benchmark index by nearly seven times. This positive market reaction underscores the financial community's optimism about the deal's prospects and its potential benefits for Telecom Italia.

Regulatory Hurdles and Solutions

The European Commission, vigilant of the competitive dynamics in the Italian telecoms market, has been conducting inquiries with rivals and customers. The focus is on preventing any adverse effects on competition that might arise from Telecom Italia relinquishing control of its crucial land-line network. A pivotal concern for the Commission has been the assurance that wholesale prices for Telecom Italia's competitors remain competitive, preventing any undue price hikes.

KKR's willingness to engage with the Commission and propose remedies early in the merger review process demonstrates a strategic effort to mitigate regulatory risks. This approach aims to circumvent the prolonged uncertainty and rigorous scrutiny associated with a "phase 2" investigation. The EU's decision timeline is expected to extend by 10 days following the formal submission of these remedies, indicating a structured and responsive regulatory process.

Implications for Telecom Italia and Italy

The EU's impending approval of the deal would signify a considerable achievement for Telecom Italia's CEO, Pietro Labriola, who has been a key proponent of the network sale strategy. Furthermore, it would represent a significant win for Prime Minister Giorgia Meloni's government, aligning with national interests by reducing Telecom Italia's debt burden while ensuring the Italian government retains oversight of a strategically important asset.

KKR's binding offer, which values the grid at approximately €22 billion, includes a provision for Italy’s Finance Ministry to acquire up to a 20% stake in the grid unit. This arrangement ensures that the government maintains a degree of control over the network, addressing any potential national security or strategic concerns.