An exodus of board members at a country’s largest telecoms company would normally spook the market. Yet at Telecom Italia, where eight board members of the former monopoly resigned last week, its share price hardly moved.
Among those who resigned are Arnaud de Puyfontaine, the executive chairman who is also chief executive of Vivendi, Hervé Philippe, the French company’s finance director, and Frédéric Crépin, general counsel, who joined the board last year.
The resignations came after Elliott Management, the activist hedge fund run by billionaire Paul Singer, revealed that it had built a position of almost 6 per cent in Telecom Italia three weeks ago and had trained its guns on Vivendi’s creeping influence. It called for a board overhaul and nominated a slate of directors to replace those with links to Vivendi, including Mr de Puyfontaine.
The showdown was due to have taken place on April 24 but the board exodus means the two sides will now go head-to-head at a shareholder meeting on May 4. Vivendi wants to frame the debate around the vote to one where investors back management’s three-year growth strategy, or what it calls Elliott’s “short-termist initiatives to dismantle Telecom Italia”.
Elliott has taken a dim view of Vivendi’s brinkmanship, saying in a statement: “The board has simply abandoned their posts to stall for time. Elliott regards this action as cynical and self-serving.”
Analysts say that Vivendi’s decision to act suggests that Elliott’s demands were likely to be carried. That would have represented a huge setback for Mr Bolloré only weeks after he sold its stake in video games publisher Ubisoft in what was seen as a blow for the billionaire.
The May 4 vote will pit the growth strategy, designed by Amos Genish, Telecom Italia’s chief executive and a close confidante of Mr Bolloré and a seasoned telecoms veteran, against Elliott’s proposal to hand control of the board to a clutch of Italian establishment figures.
Vivendi says it has made rapid progress in turning round one of Europe’s worst performing telecoms businesses despite public battles with regulators, the Italian government and a legal stand-off with Fininvest and Mediaset, the holding company and media group controlled by Silvio Berlusconi. The French group has laid out a plan to spin off the company’s fixed-line network unit, and is open to the sale of its Sparkle subsea cable unit and a selldown of its stake in Inwit, the towers company, to reduce debt.
“This company has disappointed the market for too long. We needed to show things could be done,” Mr de Puyfontaine told the Financial Times. “We could have done short-term moves and had a lame duck left, or a long-term plan to benefit Telecom Italia, Italy and the health of the market.”
Mr Genish told the FT his three-year plan would radically improve free cash flow, reduce the company’s €24bn of debt and reintroduce dividend payments for the first time since 2013 within the next two years.
Elliott’s move to overhaul the board was an “irresponsible step”, he said, adding that there was no divergence in the interests of Vivendi and Telecom Italia as the fund has claimed.
“If someone puts €4.2bn in then I think you expect some influence on things, but I am fully convinced there is no conflict,” Mr Genish said. Investors had to choose between “the American hedge fund view — the sausage factory — or to take a serious industrial approach”.
The proxy war between Vivendi and Elliott has distracted Telecom Italia’s management team as they have moved to get investors behind the new growth plan. Mr Genish had to meet investors during a roadshow in London this month without knowing Elliott’s intentions. He argued vehemently against any move to force Telecom Italia to merge its Brazilian business with Oi, the bankrupt local operator, a move he described as “suicide”, after guessing that was the fund’s plan.
Yet Elliott’s message that there is a “Vivendi discount” built into the share price has resonated. The stock surged when the fund’s investment was revealed and is now trading at two-year highs relative to the European telecoms sector, according to Redburn. The shares have outperformed their peers by 18 per cent since the start of the year, with most of that coming after Elliott had showed its hand.
Vivendi and Elliott have until April 9 to put forward their board nominees ahead of the May showdown, which also gives them time to settle their differences.
Stephane Beyazian, an analyst with Raymond James, said: “We cannot rule out the possibility that Elliott might have other motives. For instance, Mediaset has initiated a litigation process against Telecom Italia.” The analyst noted that Mr Berlusconi has worked with Elliott in the past, including on the sale of AC Milan, and that the fund could see a way to create value by acting quickly to resolve the dispute between Vivendi and Mediaset by exerting pressure on the French company via Telecom Italia.
Others warn that the saga of trying to restore Telecom Italia to its former glory is far from over.
Georgios Ierodiaconou, an analyst with Citi, said the proxy battle threatens a case of “too many cooks” at Telecom Italia and that it should not be assumed that Elliott will drive a recovery.
“The idea that we could see a frictionless change of strategy that would deliver a silver bullet and create a lot of value for TI shareholders . . . is reminiscent of similar false dawns in the past,” he says.
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