KKR stumbles in Italy

One potential deal to start: Silver Lake is in talks to buy a majority stake in Intel’s Altera unit as the chipmaker works to shed non-core assets and bulk up its finances to invest billions of dollars in modern chip fabrication plants in the US and Europe.

And another thing: Mira Murati, OpenAI’s former chief technology officer, has launched a rival artificial intelligence start-up focused on making the technology widely accessible.

In today’s newsletter:

KKR’s big telecoms deal stumbles

The private equity giant KKR is used to getting its way in big deals that generate large windfalls for its investors.

Yet in Italy, recent troubles at the Italian telecoms company FiberCop — which KKR bought last year in Europe’s biggest private equity deal — have threatened to derail its plans.

FiberCop operates the fixed-line networks that were carved out from Telecom Italia last year in the €22bn deal. The deal’s genesis involved drama: there was a years-long battle over the company’s sale with Vivendi, the company’s largest shareholder.

Meanwhile, the spectacle has only escalated from there. And the FT has the receipts.

Last month the company’s chief executive Luigi Ferraris quit after an explosive spat with KKR at a board meeting. That left the private equity group scrambling to save face with investors, including the sovereign wealth fund Abu Dhabi Investment Authority (Adia).

Now, the company’s on an even tighter leash. All major decisions by his successor Massimo Sarmi require prior written approval by one of two executives of KKR’s choosing, according to a memo seen by the FT.

At a meeting for the new board in mid-January, management presented earnings forecasts that jeopardised billions of euros in prospective dividends — the lifeblood, in many ways, of the deal’s expected financial return.

The company’s chief financial officer told investors — including heavyweights such as Canadian pension fund CPP Investments, Italian fund F2i and the Italian Treasury — that earnings before interest, taxes, depreciation and amortisation would be €449mn lower in 2025 than KKR had estimated.

And it gets worse. Over the next five years, the cumulative ebitda shortfall would be €2bn compared with KKR’s original business plan. The company could either cut billions of euros in dividends, or raise more public debt and risk a ratings downgrade.

Predictably, investors weren’t pleased.

“I cannot believe that after only a few months from the underwriting of a solid due diligence, numbers are off by 20 per cent,” one of the people recalled Adia’s head of digital infrastructure Mamoun Jamai having said. (Adia declined to comment.)

FiberCop is racing to prepare an updated budget before the end of the month that fits with the company’s original business plan. Let the recalculations — and potential cost-slashing — begin.

An overhaul for corporate Delaware

DD has been chronicling the soap opera in Delaware corporate law over the past couple of years.

That melodrama reached a new level on Monday when the state’s legislators — as well as the new governor — announced new bills to dramatically reshape the Delaware General Corporation Law.

And, of course, it all goes back to Elon Musk.

The billionaire entrepreneur is extremely sore that twice his $56bn pay package from 2018 (it’s worth way more now because of Tesla’s elevated share price) has been invalidated by chancellor Kathaleen McCormick, the top judge on the state’s Court of Chancery.

Delaware law is pretty stringent on companies with dominant shareholders such as Tesla, and Elon’s not one for playing by the normal rules.

Tesla has left Delaware and several other big companies including Mark Zuckerberg’s Meta and Dropbox have followed suit or are thinking about it.

The Delaware powers that be are freaked out. The state depends on incorporation fees for a big chunk of its budget.

The new legislation, as DD’s Sujeet Indap explains, makes it much easier for controlled companies, many of which are Silicon Valley-based, to push their transactions through with limited difficulties.

Expect a big pushback from plaintiffs’ lawyers and the buyside investment community.

The proposed laws are not just a big change in style but also in substance. Typically Delaware corporate governance standards are developed through judicial opinions and common law, not statutes.

As the longtime Delaware law observer Charles Elson told the FT: “The legislation destroys our reputation for neutrality and balance.”

The new favoured hedge fund trade

When Annington, a property group owned by British private equity veteran Guy Hands, offered to buy back all of its £3.35bn in outstanding bonds at above market prices, it never expected lenders to turn it down.

But in the background a group of litigious investors, including hedge funds DE Shaw, Sona Asset Management and Attestor, had built up positions in its debt with a very different deal in mind.

They instead saw Annington’s recent £6bn sale of 36,000 military housing properties back to the UK government as an opportunity to exploit a clause in the company’s bond documents.

Having scooped up its debt at prices as low as 76 pence on the pound, the creditor group is now insisting that the asset sale has triggered a so-called cessation of business clause, which has become commonplace in European investment-grade bond documentation in recent years.

If triggered, the clause forces the borrower to immediately repay its outstanding bonds at face value, which could earn the group of creditors a roughly 30 per cent profit.

The trade is not the only one of its kind in Europe.

It has gained traction since 2023, when creditors advised by Houlihan Lokey successfully pursued Belgian chemicals group Solvay for full repayment after it spun off its speciality polymers business.

Since then, hedge funds and credit investors have used the clause to go after companies from Dutch state-owned electricity grid operator Tennet to Just Eat, when asset sales have been proposed or completed. WHSmith has also appeared on the radar of investors after it confirmed that it was in talks to sell its UK high street shops.

Advisers were now sitting on “shopping lists” of companies with the clause in their documents, said a person familiar with such deals.

Borrowers, on the other hand, are only starting to wake up to the potential danger posed by the clause, according to bankers advising on the deals.

Job moves

• Deutsche Bank has undertaken a three-year hiring spree that has reversed almost all of the steep cuts imposed by chief executive Christian Sewing at the start of his tenure, underlining the scale of the challenge the bank faces in reducing costs.

• Also at Deutsche, Mark Fedorcik is retiring as co-head of the investment bank and global head of origination and advisory after 30 years at the firm. Alison Harding-Jones is replacing him.

• Longacre Square Partners has named Whit Clay as partner and head of the firm’s New York office. He was previously co-chief executive at Sloane & Company.

• Bain Capital’s Alon Avner has moved out of his role as head of Europe credit, sources tell DD. He is now a senior adviser to Bain.

• Barings has struck a deal to buy Artemis Real Estate Partners, an investment firm that manages more than $11bn in assets.

Smart reads

DEI in PE A philanthropic enterprise founded in 2020 to boost the number of Black students pursuing private equity careers is sticking to its mission despite a dramatic pullback in corporate diversity programmes, the FT reports.

Legal raid The UK expansion of the quintessential New York firm Paul Weiss is a long-term bet on the importance of English commercial law, the FT’s John Gapper writes.

India push Apple wants to diversify its supply chain beyond China, the FT reports. Can the world’s largest democracy deliver?

News round-up

BlackRock halts meetings with companies after SEC cracks down on ESG (FT)

Vanguard triumphs over State Street to take largest ETF crown (FT)

AstraZeneca hit with US class action lawsuit over China regulatory probes (FT)

UK watchdog changes tack and provisionally approves $570mn travel deal (FT)

Saudi Arabia’s PIF seeks to evict Benko family from Innsbruck mansion (FT)

Litigation funding in the dock as crunch UK judgments loom (FT)

Northvolt to sell industrial battery unit to Scania (FT)