The private equity giant KKR is known for big deals that are also expected to generate a lot of money for its clients. In Italy, KKR is now threatening to stumble over the problems of the Italian telecoms company FiberCop. Did KKR not pay attention during due diligence?
Last year, the US company KKR and a consortium led by it took over FiberCop, which had been spun off from the parent company Telecom Italia, for around 22 billion euros. FiberCop operates the fixed networks that were spun off from the Italian parent company. As the "Financial Times" reports, a gap of 449 million euros has suddenly opened up in FiberCop's balance sheet.
At an investor meeting on January 16, FiberCop's CFO reportedly stated that earnings (EBITDA) in 2025 would be EUR 449 million lower than forecast in KKR's original business plan. The cumulative deficit over five years is now estimated at two billion euros.
Dividends could be billions of euros lower
The deficit puts FiberCop in a precarious financial position: the company is now forced to cut dividends by billions of euros or take out additional public loans, which is likely to lead to a downgrade of its credit rating.
According to the report, the surprising figures were presented to investors as part of a business plan. Investors include the Abu Dahbi sovereign wealth fund (Adia) and KKR, as well as the Canadian pension fund CPP Investments, the Italian fund F2i and the Italian Ministry of Finance. CPP Investments and Adia, which each hold 17.5 percent of FiberCop, also pay KKR a management fee.
Investors are said to have been extremely upset by the shocking news. The FT quotes Adia's head of digital infrastructure, Mamoun Jamai, as saying, citing an attendee, "I can't believe that just a few months after underwriting a solid due diligence, the numbers are off by 20 percent." Other investors told the FT that the presentation was merely a "draft".
Did KKR not pay attention during due diligence?
FiberCop is now seeking to produce an updated budget for the current year 2025 by the end of the month, in line with the original shareholder-approved business plan, according to the report. However, a new, comprehensive business plan is not expected before this summer.
According to the FT, FiberCop attributes the deficit to a number of factors: the introduction of fiber optic cables in Italian households has been significantly delayed. Revenues from connection services have also fallen and, in addition, labor and IT costs have been higher than expected.
Last month, the CEO of FiberCop, Luigi Ferraris, resigned at a board meeting following a fierce dispute with KKR. To save face with investors, KKR has now put FiberCop on a very tight leash. An internal memo dated February 17, which is available to the FT, states that all "operational decisions" must first be approved in writing by one of the two executives supported by KKR. This includes a person who currently works for KKR in London and is due to move to FiberCop this month.
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