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KKR is taking a $ 12 billion method to creating Telecom Italia personal

© Reuters. FILE PHOTO: The Telecom Italia logo for the TIM brand can be seen on a building in Rome, Italy, April 9, 2016. REUTERS / Alessandro Bianchi / File Photo

By Elvira Pollina, Valentina Za and Pamela Barbaglia

MILAN (Reuters) – Telecom Italy (MI 🙂 (TIM) has received a € 10.8 billion ($ 12 billion) approach from the US fund KKR, which aims to make Italy's largest telephone company private, the company said on Sunday.

KKR's move comes as TIM CEO Luigi Gubitosi struggles to survive after coming under fire from top investor Vivendi (OTC 🙂 after two profit warnings in three months.

TIM said KKR has set an indicative price of $ 0.505 for its possible purchase offer – a premium of 45.7% on Friday's closing price of the common stock. KKR would offer the same price for TIM's savings shares.

The TIM board, chaired by former Bank of Italy official Salvatore Rossi, met for several hours on Sunday afternoon but made no brief statement indicating whether it would support the approach. It noted that KKR had described its action as "friendly" and aimed at gaining the support of the company and the government.

The Italian Treasury said foreign interest in Italian companies was "positive news for the country" and the market would judge how valid KKR's plan is if it becomes a reality.

The government will be closely following developments, with a focus on TIM's fixed line plans, which would be crucial in determining whether it will exercise its veto power.

Rome has special powers against takeovers in order to protect companies of strategic importance from foreign bids.

A new owner would also have to take over TIM's gross debt of 29 billion euros.

CUT OUT

Gubitosi brought KKR on board last year with a € 1.8 billion deal that gave the New York-based fund a 37.5% stake in FiberCop, the entity that runs TIM's last mile network that connects street cabinets to people's homes.

KKR's plan is for TIM to outsource its landline as a state-regulated facility modeled on the Terna energy network company or the Snam gas network company, two sources close to the matter said earlier Sunday.

The government wants all plans for TIM's network to be in line with the goal of rapidly completing broadband rollout across Italy, supported by adequate investment, and protecting jobs, the Treasury Department said in its statement.

Gubitosi has begun exploring ways to squeeze money out of TIM's assets, in particular reviewing a plan to merge TIM's landline – its most valuable asset – with that of fiber optic rival Open Fiber.

The project sponsored by the previous government ran aground under Prime Minister Mario Draghi.

Rome, preparing to tap billions of euros in European Union reconstruction funds to improve broadband connectivity in Italy, is aware of the need to find a way to sustain the former telecommunications monopoly and protect its 42,500 domestic workers.

PRICE "TOO LOW"

Vivendi, who is pushing to replace Gubitosi, believes KKR is not adequately evaluating TIM's offer, said a person close to the French media group.

Vivendi, which suffers a heavy capital loss on its 24% stake in TIM after paying an average of € 1,071 per share, remains ready to work with Italian authorities and institutions for TIM's long-term success, a spokesman said.

Vivendi sees Gubitosi as a short-term solution for TIM, said related parties. One person said Sunday KKR's plan could buy Gubitosi a few more months.

Private equity firms CVC and Advent have also investigated potential plans for TIM, in collaboration with former TIM CEO Marco Patuano, now a senior advisor to Nomura in Italy.

A spokesman for the two funds said they were open to working with everyone involved on a solution to strengthen TIM and refused to have any contact with Vivendi.

In order to oversee a strategic asset such as the landline, the state investor CDP has taken a 9.8% stake, making it TIM's second largest investor after Vivendi.

TIM's landline is also a key asset that supports the debt burden, which was further cut below investment grade levels by rating agency S&P on Friday.

TIM's sales have shrunk by a fifth in the past five years as a result of aggressive domestic competition from competitors such as Iliad, Vodafone (NASDAQ :), Wind Tre, and Fastweb.

($ 1 = 0.8859 euros)

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