The vote to oust the board of Telecom Italia will go to the wire on Friday, according to the activist investor aiming to reduce the sway of Telefónica over its Italian rival.
That is when shareholders will meet to vote on proposals to replace the board, including recently appointed chief executive Marco Patuano, because of concerns about the influence of Telco, a large investor group controlled by Telefónica.
The proposals have been put forward by Findim, an investment firm headed by Italian businessman Marco Fossati that owns a 5 per cent stake in Telecom Italia, and were backed last week by ISS, the shareholder proxy group.
Mr Fossati estimates that there will be support from as many as a fifth of shareholders in Telecom Italia in favour of the changes, although that would still fall short of the 22.5 per cent stake owned by Telco.
The proposals need at least half of the votes tendered at the meeting to succeed. Telco, in which Telefónica controls 46 per cent of voting rights and about two-thirds of the economic interest, has said that it would oppose the proposals. Other investors in Telco include Italian banks Intesa Sanpaolo and Mediobanca, and insurer Generali.
“It is going to be tight,” Mr Fossati said, adding that the vote would be a “signal” to the company from its shareholders. “This is the last chance to turn round the company. We don’t want to control the company; we want an independent company,” he said.
Investors with more than half of the shares in Telecom Italia have registered so far for the meeting on December 20. Telco will meet on Thursday to discuss the potential outcomes. Telefónica declined to comment.
A tight vote could mean that BlackRock’s large stake in Telecom Italia will become crucial. The US fund manager recently became the second-largest shareholder in the Italian company, after taking part in a debt and equity raising to help bolster its heavily indebted balance sheet.
BlackRock said on Monday that it had a voting stake of 7.8 per cent in Telecom Italia. It is not clear which side it will back; BlackRock declined to comment.
Central to the debate over management is a decision to be made over the future of the group’s Brazilian operations. People with knowledge of the situation suggested that Telefónica would favour a sale of the business.
Selling off TIM Brasil would raise capital for Telecom Italia, which is struggling to reduce its net debt of about €28bn amid rating agency downgrades, but could also bolster the rival Brazilian businesses owned by Telefónica, America Movil and Oi.
Goldman Sachs analysts says Telefonica’s move in September to raise its stake in Telco increases the likelihood of an attempted sale.
“This disposal or a rights issue of at least €4bn would provide the capacity to invest enough to substantially improve the structural position of TI’s domestic business,” Goldman’s Nick Brown reiterated in a note this month.
Mr Fossati criticised the recent sale of Telecom Italia’s Argentine operations and said he wanted to ensure that a Brazilian sale was at a sufficiently high price. “We cannot stop someone offering a huge amount for Brazil, but we can stop asset sales at a low price,” he said.
Questions about Telecom Italia’s future strategy have been raised by both the Italian and the Brazilian regulators, which are looking at separate issues that have arisen in the recent shifts of ownership of the company.
The Brazilian antitrust regulator has told Telefónica to either reduce its ownership of rival Telecom Italia, or sell a stake in its Brazilian business to alleviate fears over its position in the country. Telefónica, however, has said that the proposed remedies were “unreasonable” and that it was looking at the possibility of legal action against the decision. Two Telefónica executives on Telecom Italia’s board stood down on Friday, in a move seen by analysts as an attempt to diffuse the dispute with the Brazilian watchdog.
Meanwhile, Consob, the Italian market regulator, is looking at the recent issue of convertible bonds. It has complained that BlackRock did not properly disclose the increase of its stake.
There was some confusion over the exact size of the BlackRock stake after it amended an SEC filing of its Telecom Italia holding, saying it was 9.97 per cent, and not 10.14 per cent. The stake includes some bonds that can be converted to equity.
Additional reporting by David Oakley
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