Bid target Telecom Italia’s auditors meet before key board meeting -sources

By Elvira Pollina

MILAN (Reuters) -Telecom Italia’s (TIM) auditors and risk committee will examine its financial health on Thursday ahead of a board meeting which could decide the future of Italy’s biggest phone group and its chief executive, two sources told Reuters.

Italy’s former telecoms monopoly has received a 10.8 billion euro ($12 billion) buyout approach from U.S. private equity group KKR in the midst of a boardroom row between CEO Luigi Gubitosi and TIM’s top investor Vivendi.

Vivendi is pushing for change at the helm of TIM after two profit warnings since July, partly due to a costly deal with sport streaming service DAZN to screen Italy’s top soccer matches, which failed to boost its revenue.

Auditors will examine TIM’s earnings and discuss whether a third profit warning may be necessary as a result of the DAZN rights deal, Italian newspapers reported.

A third downgrade to TIM’s outlook would further strengthen Vivendi’s hand in seeking a change of CEO.

Gubitosi has close ties with KKR, which last year bought a 37.5% stake in Telecom Italia’s last-mile grid and is seeking to preserve its investment while Italy prepares to spend billions of euros of European recovery funds on a broadband rollout.

On Friday, the board is also expected to decide whether to grant KKR access to data for the four-week due diligence period it has requested before making a binding offer, the sources said. TIM is also expected to appoint advisers.

Vivendi has just two representatives on TIM’s 15-member board which has a majority of independent directors. Another three independent directors are seen as close to Vivendi.

One seat belongs to state investor CDP, which holds 10% of TIM to oversee its fixed network assets, which are deemed of strategic national importance.

Treasury-controlled CDP has so far opposed any major management changes at TIM, sources have said.

A management reshuffle could complicate KKR’s offer, which is conditional on the support of TIM’s board and the government’s approval.

“I will not comment on this while financial markets are open,” new CDP CEO Dario Scannapieco said on Thursday when asked whether the powerful institution wanted to keep or increase its shareholding.

TIM shares ended 2.65% lower at 0.4840 euros on Thursday.

($1 = 0.8913 euros)

(Reporting by Elvira Pollina; Editing by Alexander Smith, Kirsten Donovan)