So, who is next? That’s the question on the lips of traders in London after a private equity bid for Telecom Italia (TIM).
KKR has launched the offer for the group in a deal that values the Italian telco shares at just under £9bn. It would also be taking on £19bn of net debt.
It made for a sprightly start in London for shares in BT Group PLC (LSE:BT.A) and Vodafone Group PLC (LSE:VOD), which were in demand early on.
KKR’s move for TIM follows interest from France’s Vivendi, AT&T of the US and Spain’s Telefonica.
Two profit warnings in three months makes the bid look opportunistic.
What analysts and investors will have cottoned on to quickly is the fact that KKR is ready to swallow a lot of debt to take TIM out.
This may speak to a longer-term vision than many wouldn’t usually credit private equity as having.
It may also suggest there may be an air of desperation in the private equity industry which, according to Bloomberg, has around US$1.5trn of unspent capital.
That fellow private equity monsters Advent and CVC are being mooted as TIM co-investors implies there is a particular appetite to do deals in this sector.
That’s possibly why BT, which some cynics refer to as a pension fund with a telco attached, and heavily indebted Vodafone firmed in early trade. The former is up 3% and the latter 1.8%.
Speculators no doubt wonder whether there’s a consolidation play here, or is this just naked opportunism?
The basement valuation of the Italian group evidently had all the usual predatory suspects circling.
One obstacle to KKR’s ambitions for TIM comes in the form of the Italian government, which can exercise anti-takeover powers if it thinks the deal isn’t in the national interest.
If there’s a veto, where do KKR et al look next?
The UK, possibly.
There’s another dimension to this too, for BT at least.
Patrick Drahi’s Altice, which bought a 12% stake in the group in June, will see its no-bid clause expire on 10 December leaving it free to go after BT lock, stock and barrel.
Stepping back, the TIM bid feels like the same play-book used to pick off parts of the UK food retail sector.
These were undervalued, unloved assets that were trading at a discount to historic valuations.
The equity market was too slow to recognise the opportunity, so private equity stepped in – they took over Morrisons and helped bankroll the Issa brothers’ bid for Asda (part of Wal-Mart, I know…but you get the point).
Sainsbury and Marks & Spencer both reportedly remain of interest to spendthrift buyout firms.
All of this makes for an interesting run-up to Christmas – not just for the telcos but any FTSE 100 company bar the banks, oilers and miners where you can bag a yuletide bargain.