Shares in Telecom Italia (TIM) jumped as much as 30% today, after US fund KKR presented a non-binding proposal to buy Italy's former phone monopoly valuing it at €10.8 billion.
The size of the move triggered the suspension of trading of shares in Italy's biggest phone group, which has a major role in efforts to expand broadband connectivity across the nation.
KKR's offer, which is conditional on the government's backing and the outcome of a four-week due diligence analysis, gives Telecom Italia (TIM), with its net debt of €22.5 billion, an enterprise value of €33 billion.
TIM said KKR had termed as "friendly" its offer of 50.5 cent per TIM share, a 45.7% premium to the closing price of the group's ordinary stock on Friday.
The price, which TIM said was "indicative", would expose the company's top investor Vivendi to a steep loss on its 24% stake, for which it spent on average of €1.07 per share.
A person close to the French media group told Reuters Vivendi believed KKR's offer did not adequately value TIM.
TIM's board did not give a view on the proposal.
KKR's offer comes amid turmoil at TIM, which has issued two profit warnings in three months, prompting Vivendi to push to replace chief executive Luigi Gubitosi.
Having failed to stem TIM's revenue decline, Gubitosi has looked at options to squeeze money from the group's assets, including the most prized one - the fixed line network, which the government deems strategic.
Italy's Treasury said the decision on whether to use special government powers to block unwanted foreign interest on strategic companies would hinge on plans for the network.
Rome is preparing to deploy billions of euros of European Union recovery funds to support ultra-fast broadband rollout across Italy, which ranks low for digital connectivity in the EU.
The government wants to make sure that any plans for TIM's network are in line with Italy's broadband goals, providing the necessary investments and protecting jobs.
TIM's 42,500 staff in Italy have been a concern for the government, together with the group's junk-rated debt pile which has hampered investments needed to upgrade the network.
KKR wants to take TIM private, which analysts say would make a restructuring easier.
The New York-based private equity firm would carve out TIM's assets, including the fixed line which would be run as a government-regulated asset along the model of power grid Terna or gas grid Snam, sources have said.
KKR is already an investor in TIM's network following an €1.8 billion deal struck with Gubitosi last year to acquire a 37.5% stake in FiberCop, the unit holding TIM's so-called "last mile" network running from the street to people's homes.
Rival private equity firms CVC and Advent, which also had been studying plans for TIM advised by its former CEO Marco Patuano, said they remained open to working on a solution to strengthen TIM.