KKR’s €22bn Italian Telecom Deal Faces Early Setback as FiberCop Misses Targets

Europe’s largest-ever private equity deal has quickly gone sideways for KKR: FiberCop, the entity created in 2023 through the €22 billion carve-out of Telecom Italia’s fixed network business, is starting to raise questions not long after it was purchased.

At a January 16 board meeting, FiberCop management shared updated financial projections showing a €449 million EBITDA shortfall in 2025 relative to the underwriting case agreed to by the company’s shareholders, which, alongside KKR, includes F2i, the Italian Treasury, Abu Dhabi Investment Authority, and CPP Investments, with the latter two paying KKR a management fee.

The full revised forecast, which extends through 2028, contemplates a cumulative €2 billion EBITDA deficit vs. plan.

Citing multiple sources in attendance, the Financial Times reports investors in the room were “incensed” upon hearing the update. “I cannot believe that after only a few months from the underwriting of a solid due diligence, numbers are off by 20 percent,” Mamoun Jamai, ADIA’s head of digital infrastructure, reportedly said.

FiberCop CEO Luigi Ferraris resigned shortly after the meeting, less than seven months in the role. Ferraris—a tenured executive who led Italy’s state railway and had been hand-picked for the job at FiberCop—had his resignation “unanimously” accepted by the board amid speculation he had started to realize the extent of his telecom knowledge gap.

Chairman Massimo Sarmi (who was appointed by the Italian Treasury) has taken over as interim chief executive. A search for a new CEO is underway, but any candidate will need the approval of both KKR and the Italian Treasury.

According to an internal February 17 memo seen by the Financial Times, his successor must now obtain written approval from KKR-designated executives for all significant operational decisions. One of these controlling executives, currently based in KKR’s London office, will join FiberCop directly later this month.

The underlying source of the miss is varied, which might mean a tall hill to climb as KKR and Fiberco try to get back on track.

Original revenue projections now seem overly optimistic against the reality of sluggish customer migration from legacy connections to fiber. Increased competition from other providers has hurt, and FiberCop has increasingly found itself running up against natural roadblocks: rolling out fiber in a country with challenging geography hasn’t been easy. In some rural or remote areas of Italy, logistical hurdles have slowed installation progress to a crawl.

Compounding the problem is greater than expected churn among existing customers, which management now projects will push growth of net active lines into negative territory.

Much of the remaining miss is attributable to a carve-out that has proven much more challenging than expected. The complexity of untangling from TIM’s legacy systems and standing up separate network operations has been a headache, and planned cost-cutting measures have taken longer to materialize than hoped for.

The situation has added urgency because mid-term cash dividends had been a key part of the group’s investment thesis. Those now appear to be in jeopardy, absent additional debt financing that would present its own challenges (namely a possible rating downgrade and opposition from Italian authorities).

Management has been told to prepare a revised plan for the board before the end of the month.

One of the short-term fixes is expected to be the postponement of a planned early retirement scheme for around 1,300 employees. This avoids upfront separation cost that would have hit 2025 but means the previously projected cost structure will take even longer to realize.