Italy’s TIM issues third profit warning of 2021 amid boardroom battle

FILE PHOTO: The Tim logo is seen at its headquarters
FILE PHOTO: The Tim logo is seen at its headquarters in Rome, Italy November 22, 2021. REUTERS/Yara Nardi/File Photo

December 16, 2021

By Francesca Landini

MILAN (Reuters) – Telecom Italia (TIM) has issued its third profit warning in a year ahead of a board meeting on Friday that is expected to take more time on account of a takeover offer from U.S. fund KKR.

TIM, which is Europe’s sixth-largest telecoms group, said late on Wednesday that it had cut the 2021 earnings forecast for its domestic business due to lower-than-expected fixed-line revenue from its partnership with DAZN to screen Italian soccer.

Top shareholder Vivendi <VIV.PA> has blamed former TIM Chief Executive Officer Luigi Gubitosi for the phone group’s poor financial performance and could seek an overhaul https://www.reuters.com/markets/europe/telecom-italia-investor-vivendi-considers-seeking-board-revamp-sources-2021-12-15 to oust him from its board of directors, four sources told Reuters on Wednesday on condition of anonymity.

The board will meet on Friday to discuss, among other things, KKR’s 33 billion euro ($37.29 billion) takeover proposal, but a source said it was unlikely any formal decision would be taken.

“Telecom can’t evaluate the KKR approach at the moment because the conditions are not there,” the source said, adding that it had only appointed advisers a week ago.

Any decision may have to wait for the group’s new business plan early next year, the source said.

“Such a scenario slightly reduces the likelihood of a bid, testing the patience of KKR,” Banca Akros analyst Andrea De Vita said in a note.

KKR said earlier this week that it is keen to engage with TIM and expects to conduct a due diligence analysis, but added that it had set no deadline.

The impasse over governance also risks complicating things.

If Gubitosi does not resign as a director at the meeting on Friday, Vivendi could request an extraordinary shareholder meeting be called to appoint a new board, two sources have said.

A board revamp could also be triggered by the resignation of a majority of directors.

TIM shares were 2.9% lower at 1456 GMT on Thursday.

(Graphic: Telecom Italia (TIM), https://fingfx.thomsonreuters.com/gfx/mkt/egpbkowlgvq/TIM_DEC16.png)

TIM now expects a “low-teens decrease” in 2021 organic earnings before interest, tax, depreciation and amortisation after leases (EBITDA-AL) for its domestic business. In October, it forecast a “high single-digit decrease” for the business.

“This new guidance implies a very negative fourth quarter (for domestic business core earnings) compared to the 9.8% fall posted in the nine months, leading to a potential drop of more than 20% year-on-year,” De Vita said.

DAZN DEAL

Earlier this year, TIM entered into a 1 billion euro deal with sport streaming service DAZN to try to boost its broadband and pay-TV services.

TIM is now looking to cut the cost of the deal after the accord to distribute Italy’s top-flight soccer league matches generated less revenue than expected.

Any non-recurring provision will be determined in light of the ongoing negotiation of the DAZN agreement and will be booked in 2021, TIM said in a statement.

TIM said it expected group organic EBITDA-AL for 2021 to be higher than 5.4 billion euros thanks to growth at its Brazilian business unit, which was confirmed at a “mid-single-digit” rate.

EBITDA-AL was 6.3 billion euros in 2020, according to TIM’s annual report, and the group had previously flagged a “mid-single-digit” drop for this year.

Jefferies brokerage said consensus for 2021 organic EBITDA-AL was 5.8 billion euros at group level.

After a payment of 435 million euros for licences, the company’s adjusted consolidated net financial debt is expected to be around 17.6 billion euros.

($1 = 0.8849 euros)

(Additional reporting by Shivani Tanna, Vishal Vivek in Bengaluru and Stephen Jewkes in Milan; Editing by Subhranshu Sahu, Mark Potter, Kirsten Donovan and Paul Simao)