It seems not all is well in the wake of Europe’s biggest ever private equity deal as management’s earnings forecasts don’t line up with the business case for the NetCo
The Financial Times [subscription needed] reports that US private equity company KKR has clashed with management at FiberCop, the fixed infrastructure NetCo it spun out of Telecom Italia (TIM). It seems the private equity company is not happy with “a projected €449mn earnings hole” which put prospective dividends in doubt.
KKR initiated a €22 billion deal to gain control of the TIM’s domestic fixed infrastructure. The transaction was finalised in July 2024 after a complex battle, involving many stakeholders, that lasted years. FiberCop’s CEO, Luigi Ferraris, quit last month after what the FT described as “an explosive board meeting”. Ferraris only took up the role last July when the deal was finalised and was formerly the CEO of Italy’s state-owned railway.
Apparently at that board meeting, FiberCop’s management said the predicted shortfall in earnings compared to those set out in KKR’s business plan meant that either the projected billions of euros in dividend payments over the next five years would have to be cut or the company would have to raise more public debt and risk a ratings downgrade. The main reason for the immediate shortfall was due to the number of lines it expected customers to cancel, which has since been revised upwards.
Apparently the management also said it expected a €2 billion EBIDTA shortfall over the next five years compared with KKR’s business plan.
Not a good look for other investors who had come in with KKR – the Adu Dhabi Investment Authority, the Canadian pension fund CPP Investments, the Italian fund F2i and the Italian Treasury.
KKR is insisting that the new CEO, Massimo Sarmi, who was appointed to the board last year by the Italian Treasury, must seek approval from one of two specified KKR executives before making any significant decisions – according to an internal memo the FT says it has seen. Some costs are on hold and the revised 2025 budget is not likely to be ready before summer.
FiberCop apparently responded to the FT’s report denying any tension between shareholders.