Kkr: philanthropists or speculators? Debate at Repubblica
What has the newspaper Repubblica edited by Maurizio Molinari written in recent days about the American fund KKR which will acquire control of the TIM network. Francis Walsingham's letter
Dear director,
I swear I don't understand anything anymore. I'm reading Italian newspapers, as per your advice, but I realize that reading perhaps leads me to focus less on the news and more on the way in which it is given. I explain to you.
I am referring to the Tim-KKR affair, which – as you may have noticed from my previous letters – is making me very passionate. A few days ago, when telling you about the sloppy praise for the US fund and Tim's board of directors, I pointed out an article by Paolo Mastrolilli, United States correspondent for the newspaper Repubblica . An article full of numbers and previews, which reveal the altruistic aims of Kkr (which "will take on Tim's debt") and the plans of the fund in "five or six years". But obviously no source: where Mastrolilli got that information from, the reader is not allowed to know. I assume from the American background but this was not at all clear.
Today however – again in Repubblica , moreover – I read an article by Giovanni Pons, who already on Tuesday had clarified the objectives of both KKR and the Ministry of Economy on the TIM network. Today, however, the finance expert journalist reconstructs the story from its origins, that is, from April 2021, when the agreement between Tim, KKR and Fastweb came into force for the birth of Fibercop (the company where the secondary network, or last mile, by Tim). The objective of the American fund was to accelerate the transition from copper to optical fiber, in order to drastically lower the costs of managing the infrastructure and collect more money from the telephone operators who rent it.
However, Kkr was not entirely convinced of this move, and therefore – continues Pons – "the CEO of Tim at the time, Luigi Gubitosi, to convince them had to grant a guaranteed return and an exit right (put option) the terms of which are not never been disclosed." In recent years, KKR has fared better than Tim, who does not have the same financial solidity; and so the company began to evaluate the complete sale of the network and reached an agreement again with KKR, this time for 18.8 billion euros.
“Of this figure, as reported by the CEO Pietro Labriola”, explains Pons, “8.5 billion will be represented by debt already taken out by KKR with the banks and which will repay the existing debt of Tim. This leaves 10.3 billion in capital to be paid to Tim by the buyers. As far as KKR is concerned, a part will be contributed in kind as it already owns the 37.5% of Fibercop which is part of the overall valuation".
Except that in the meantime the value of Fibercop has grown significantly, so the 37.5 percent of Kkr is no longer worth 1.8 billion, but around 3.6 billion. There is nothing strange or suspicious about this: it works like this, those who invest take a risk with the aim of earning; Kkr has earned from Fibercop and will also want to earn from NewCo, the new company into which Tim's network will merge.
The point is another, dear editor: that is, it is not clear, reading Repubblica , whether those of KKR are benefactors or speculators (speculators in the neutral sense, obviously). Reading Pons today, the impression is that the fund thinks about its own profit, and that only, as is in its nature. Reading Mastrolilli a couple of days ago, however, all that Kkr was missing was the halo, because it was said that the company would take on Tim's debt, making the latter "freer to use the 'cash flow' to modernize the infrastructure", thus allowing "a fundamental technological turning point for Italy".
Maybe it's better if I focus on the American press…
Best regards,
Francis Walsingham
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/kkr-tim-dibattito-repubblica/ on Fri, 10 Nov 2023 13:30:59 +0000.