Telecom Italia chief offers resignation after KKR buyout offer

Telecom Italia is approaching its sixth management overhaul in less than nine years after Luigi Gubitosi offered his resignation as chief executive ahead of an extraordinary board meeting scheduled for Friday afternoon.

Pietro Labriola, the head of Telecom Italia’s Brazilian division, has been approached to succeed Gubitosi according to three people involved in the talks. However, members of the board and other people close to the discussions in Paris and Rome anticipate there could be last-minute surprises as informal internal discussions this week have been “particularly heated”.

The Italian finance ministry, which controls a 10 per cent stake in the company through state-backed investor Cassa Depositi e Prestiti, will also have a say in any management overhaul, according to the people.

Telecom Italia did not respond to a request for comment. Vivendi, the group’s biggest shareholder, and Italian officials declined to comment. Economic development minister Giancarlo Giorgetti, however, said this week “the Italian government does not [influence the board’s] management decisions”.

Vivendi, the French conglomerate which holds a stake of 24 per cent in Telecom Italia, had previously signalled it held Gubitosi responsible for the company’s poor performance and began agitating for a management change. Several other board members had requested Friday’s meeting to discuss the chief executive’s future, according to people with knowledge of the board’s discussions.

However, attention had shifted last Sunday following KKR’s non-binding €33bn offer to take Telecom Italia private.

The US buyout fund offered €0.505 a share in cash — a 45 per cent premium on the company’s closing price last Friday that would give the company an equity value of €10.7bn. It has roughly €22.5bn of net debt.

If successful, the deal would represent the largest private equity buyout of a European company in history.

But Vivendi has deemed the price offered by KKR, around half the average that it paid to build its stake in 2016 according to analysts, as too low.

According to several people involved in the talks, the French conglomerate also believes the US buyout fund’s offer had been launched with Gubitosi’s help behind their backs.

KKR has already worked closely with Gubitosi after it acquired a 37.5 per cent stake in FiberCop, Telecom Italia’s ‘last mile’ network, for €1.8bn last year.

Vivendi and KKR declined to comment on that suggestion while it was strongly rejected by Telecom Italia.

Telecom Italia has also incurred several other problems this year: it has issued two profit warnings in the space of three months, a complex merger plan with rival Open Fiber appears to have run aground and a Serie A broadcasting rights agreement with British platform DAZN was not as profitable as planned.

Telecom Italia’s stock fell almost 40 per cent in the period since Gubitosi took charge in November 2018 and the middle of this month.

According to several people close to the chief executive, Gubitosi chose to anticipate a likely no-confidence vote by offering to step down. In a letter to members of the board on Thursday evening, Gubitosi said he wished to facilitate the talks with KKR, the beginning of the due diligence process and the choice of an adviser by stepping aside, according to three people with knowledge of the letter’s content.

Whether the buyout deal can move forward at this point also depends on the Italian government which has veto rights over foreign takeovers of strategic assets.

Prime Minister Mario Draghi told a press conference this week that the government’s priority would be protecting Italian jobs, technology and the network. He has established a working group made up of ministers to consider Telecom Italia’s options.

Separately, in a statement to the press on Thursday night, a spokesperson for Draghi denied the prime minister had greenlighted the potential KKR deal.