Heard on the Street: There is value in European stock markets, but investors often need muscle to extract it
of the former Italian telephone monopoly’s fixed-line network, FiberCop. Last month, Telecom Italia said KKR had proposed a takeover of the entire company for roughly $38 billion, including debt the new owner would assume. Telecom Italia is now evaluating its options in a drawn-out process likely to test KKR’s patience, but if a deal does emerge it would be the largest ever private-equity buyout of a European company.
For years, Telecom Italia has been a basket case. Excessive debt and dysfunctional governance led it to underinvest in its network, leaving the door open to multiple challengers. KKR could give the company the complete reset it needs. The Italian government, which has the power to block the deal, hasn’t ruled it out: In an end-of-year press conference this week, Prime Minister Mario Draghi merely said that discussions were ongoing.
KKR will need to commit to a big investment program if it wants to own a central part of Italy’s digital infrastructure. But there are also potential returns that don’t rely purely on renewed growth. FiberCop could be spun out of Telecom Italia to improve its valuation and potentially increase leverage; broadband assets are much more popular among investors and lenders than the telecom operators that typically own them.
There are echoes here of private-equity interest in a different sector: British supermarkets. Grocer Wm. Morrison this summer became the subject of a bidding war that
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