After long back-and-forth, it appears as though a mega-deal is now officially sealed. Former Italian phone monopoly Telecom Italia S.p.A. (TIM) is selling its landline business to U.S. financial investor Kohlberg Kravis Roberts & Co. (KKR).

On Sunday, the TIM board of directors announced its acceptance of KKR’s binding offer for the sale of TIM’s Italian landline division, submitted on October 16.

Deal values landline division at 18.8 billion euros KKR is taking over TIM’s subsidiary NetCo, which holds the company’s Italian landline business. The binding KKR offer values NetCo at an enterprise value of 18.8 billion euros.

The purchase price could potentially increase up to 22 billion euros depending on which portion of TIM’s debt is transferred to NetCo. Italy is now the first major European country to sell its landline to an investor.

However, the Italian government will still have a say in the deal. It will be purchasing a 20% minority stake in NetCo as part of the deal.

Major shareholder Vivendi criticizes board decision French media giant Vivendi SA, which holds 23.75% of TIM’s shares, quickly reacted to the sale decision. In a statement issued on November 5, Vivendi sharply criticized the board’s decision.

The French company feels that, as major shareholder, they have been overlooked and are calling for a shareholder vote on the takeover decision. Vivendi will „use all the legal means that are available to it to challenge this decision and protect its rights and those of all shareholders,“ the company stated.

Telecom Italia needs to reduce debt The reason TIM is selling off its landline division is clear. The Italian telecommunications company is heavily in debt, with a debt load of around 26 billion euros. TIM intends to use around 14 billion euros from the sale of its landline division to reduce financial debt.

In addition, the company will be able to halve its current 40,000 workforce. The company also plans to focus on services in the future.

Stock market reaction After the board’s approval of the sale of the landline division to KKR on Sunday, the TIM share price initially opened 4.4% higher on Monday. During the course of the day, however, it lost ground and closed 3.4% lower on the Milan stock exchange.

At first, the news that the sale of Telecom Italia’s landline division to KKR had been approved by the board briefly pushed the share price up. But during the day, doubts increased as to whether the deal could be implemented without shareholder approval.

What’s next The TIM board of directors tasked TIM CEO Pietro Labriola with drawing up and signing binding takeover contracts. The board expects the transaction to be completed by summer 2024, subject to the usual conditions being met.

But there are good reasons to doubt that this will be the case. The key question will be to what extent TIM was allowed to carry out the deal without shareholder approval.

Ultimately, the courts will have to decide on this. After all, Vivendi has already announced that it will use all legal means to review the board’s decision.