Italy Backs Telecom Italia Deal in New Meloni Activist Push

Alessandra Migliaccio and Flavia Rotondi
·2 min read
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(Bloomberg) -- Italy approved a decree on Monday that empowers the state to take a stake in Telecom Italia SpA’s network business, part of an effort by Prime Minister Giorgia Meloni’s increasingly activist government to assert more control over strategic assets.

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Telecom Italia shares rose as much as 3%, to their highest since April, in early trading in Milan following the decree, which gives cabinet backing to an agreement with US private equity firm KKR & Co. to jointly control the carrier’s grid.

Under the deal, in the works for months, Italy is entitled to take as much as 20% of the business, the most valuable asset in the former monopoly’s portfolio.

“Our vision is the one that the center-right has always backed: assuming strategic control of the telecom network and protecting jobs,” Meloni said during the cabinet meeting, according to a statement distributed by her office. She called the move “a first step, which will be followed by more market-driven decisions.”

KKR signed a preliminary agreement this month to include the government in its €23 billion ($25 billion) bid for the network, which Telecom Italia is offloading in an effort to trim gross debt of more than €30 billion.

The government is ready to spend as much as €2.2 billion on the deal, Economy Minister Giancarlo Giorgetti said at a news conference in Rome. A role is still possible for state lender Cassa Depositi e Prestiti “compatible with antitrust limits,” he said.

How and for how much to sell the asset has for years been a contentious issue with the company’s largest shareholder, France’s Vivendi SE, which earlier opposed the deal.

“The news in our view significantly raises the chances of the transaction being realized, given the clear and strong political support from the top government levels,” Equita analyst Domenico Ghilotti wrote in a note. “The transaction would resolve Telecom Italia’s excessive debt issue.”

While the company is privately owned, the telecommunications business falls under the oversight of the government, which has the right to veto deals involving what it considers strategic assets.

Meloni’s coalition has pledged to protect Telecom Italia’s 40,000 employees but for months disagreed on the best way to proceed.

The former telecoms monopoly has been grappling with a complex mix of high labor costs and the need for ever-expanding investments to modernize infrastructure.

--With assistance from Chiara Remondini.

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