(Bloomberg) — Telecom Italia SpA reported a record 8.6 billion euros ($9.6 billion) loss for the fourth quarter after booking impairment charges in preparation for a spinoff of its landline network.
The charges included 4.1 billion euros impairment of domestic goodwill and 3.8 billion euros for deferred tax assets.
Shares were down as much as 13.7% in Milan trading after initially failing to open.
The company also booked 548 million euros in non-recurring provisions partly linked to a now-renegotiated soccer broadcast deal with DAZN Group Ltd, according to a statement Wednesday.
The results compared with a 6 billion-euro profit a year earlier, which also included special items.
Telecom Italia reported organic fourth-quarter earnings before interest, taxes, depreciation and amortization of 1.38 billion euros, slightly below analysts estimates of 1.43 billion euros.
For the same period the phone carrier posted revenue of 3.98 billion euros in line with a 4 billion-euro Bloomberg consensus. The board proposed no distribution of a dividend.
CEO Plan
Telecom Italia’s new Chief Executive Officer Pietro Labriola, a 54-year-old industry veteran, has drawn up a 2022-2024 plan to shake up the company by separating the landline network into a new unit called NetCo focused on wholesale services, with the goal of gaining a solid revenue stream from regulated tariffs.
The plan also sees all commercial services spun off into a separate unit called ServCo.
Labriola is trying to fend off KKR & Co.’s 10.8 billion-euro takeover bid, which remains pending.
Bloomberg News reported on Tuesday that Telecom Italia is seeking to get KKR to scrap its bid for the company by involving the U.S. private equity giant in the plan to spin off its landline network. An advisers’ assessment of the KKR bid will be finalized shortly and a board decision will follow.
“Telecom Italia’s weak outlook reduces the odds of KKR improving its takeover offer significantly,” Erhan Gurses, an analyst for Bloomberg Intelligence wrote in a note on Thursday.
Labriola has said he wants to build a single national phone network in Italy and avoid billions of euros in duplicate investments through the merger with smaller, state-backed Open Fiber SpA.
State-backed lender Cassa Depositi e Prestiti SpA, which owns about 10% of Telecom Italia, is also Open Fiber’s largest shareholder.
“Telecom Italia is committed to generate more value than the KKR offer, which also includes some elements of uncertainty” Labriola said, adding that the bid price of about 50 euro cents per share implies an higher estimate of the company’s value.
Still KKR is an important partner for Telecom Italia’s fiber unit FiberCop, the CEO said.
Debt Mountain
Telecom Italia shares have declined 21% since January and the company last year issued three profit warnings under Luigi Gubitosi, who resigned as CEO in November.
The carrier is suffering from stiff competition in its domestic market where the 2018 entrance of France’s Iliad SA sparked a price war.
The company also has a gross debt pile of about 29 billion euros and is planning to sell some assets such as its stake in wireless tower unit Inwit SpA to raise cash.
A consortium of institutional investors led by Ardian has submitted a binding offer to purchase the indirect stake Telecom Italia holds in Inwit.
The sale should be completed by June, Labriola said Thursday in a conference call with reporters, adding that the Ardian-led group offered 10.75 euro per share.
(Updates with shares, CEO comment)
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