Telecom Italia flags cash call risk to investors if KKR deal collapses, sources say

By Thomson Reuters Mar 15, 2024 | 1:25 PM

MILAN (Reuters) – Telecom Italia’s (TIM) Chief Executive Pietro Labriola has warned investors the company could need to raise billions in capital if the planned sale of its network to U.S. fund KKR collapsed, two sources briefed on the matter said.

Labriola met a few dozen investors in Milan on Friday after presenting a new three-year strategy last week for the company set to emerge from the fixed network divestment. The TIM CEO will meet other investors in London on Monday.

Labriola told the meetings TIM expected to gain necessary approvals to complete the sale to KKR this summer as repeatedly indicated, the sources told Reuters, requesting anonymity as the meetings were confidential.

Asked about what would happen if the KKR deal fell through, Labriola said cash-burning, debt-laden TIM would need to reduce spending drastically or seek fresh capital to sustain planned investments, the sources said.

TIM shares recorded their sharpest fall on record following the plan’s unveiling as investors fretted about debt rising further in the short term and the new company not generating cash before 2026, despite projected robust core profit growth.

The market reaction piles pressure on Labriola ahead of a shareholder vote next month over whether to hand him another mandate.

Backed by the Italian government and worth up to 22 billion euros, the network deal is opposed by TIM’s top investor Vivendi, which has questioned the sustainability of the remaining business.

With its 24% stake, Vivendi could stand in the way of Labriola’s reappointment if an alternative slate of board candidates emerged ahead of the April AGM.

Any successor to Labriola would still need to finalise the KKR deal, or else expose TIM to penalties under the accord it sealed with the U.S. fund, one of the sources said.

(Reporting by Elvira Pollina and Elisa Anzolin; Editing by Valentina Za)