Titolo: 14:47 DJ Telecom Italia Tug-of-War Explained
Testo: THE CONFLICT:
Telecom Italia's main shareholder Vivendi SA and activist investor Elliott Management Corp. have been locked in a fight over the company's strategy and board since early 2018, when Elliott Advisors, the U.K. arm of Elliott, began building a minority stake in it. Up until then, Vivendi, with a stake of almost24%, had held sway at the telecommunications company.
Most recently, Vivendi-favored Amos Genish was dismissed as Telecom Italia's chief executive on Nov. 13, marking the latest **** to be landed by Elliott in the struggle for influence at the company.
The conflict began in March 2018, when Elliott called for changes to the company's board of directors as well as its strategy. The activist investor said Telecom Italia should sell part of its fixed-network operation NetCo, dispose or sell part of subsea cable unit Sparkle, reduce its leverage and resume dividend payments. Vivendi responded by saying that Elliott was "well-known for its short-termist initiatives," and stood by the strategic plan put forward by Mr. Genish.
On March 22, Telecom Italia Chairman Arnaud de Puyfontaine--who is also Vivendi CEO--and other board members said they would resign, forcing a complete reshuffle. In a shareholder vote held in May, Elliott wonthe right to nominate 10 of the 15 seats on Telecom Italia's board. Vivendi now holds the remaining five seats, and Mr. de Puyfontaine is still a board member.
A few days after the vote, the Italian company reiterated its support of Mr. Genish as chief executive and said it would support him in the implementation of the 2018-20 strategic plan. As a consequence of the vote, Telecom Italia said Vivendi was "no longer a party exercising direction and coordination" over the company.
Vivendi has since criticized Elliott's management of Telecom Italia many times, notably when the company swung to a 1.4 billion-euro ($1.58 billion) loss in the third quarter, hit by a EUR2 billion writedown on goodwill. Telecom Italia defended itself, saying it was "not attributable to disorganization on the part of the company or to failures in the new governance, as Vivendi insinuated, but to measures implemented by Amos Genish that can be drawn back to strategic choices made by shareholder Vivendi."
ELLIOTT'S VIEW:
Elliott holds about a 9% stake in Telecom Italia, and gained control of the board of directors after May's shareholders' vote. The activist fund had pushed for changes, citing strategic missteps, weak share performance, corporate conflicts of interest and governance failings as its motivation to intervene.
Telecom Italia operates "an outstanding collection of assets that, if properly managed, should produce substantial, consistent returns," the fund said in March. Following criticism by Vivendi in September that Telecom Italia's new board was failing, Elliott urged shareholders to give it time to show that it can create value. Since the beginning of the year, Telecom Italia's shares have shed more than 25% of their value, weighed by the power struggle as well as the company's failure to improve performance.
VIVENDI'S DEFENSE:
After losing control of Telecom Italia's board in May, Vivendi reaffirmed its commitment to the company and said it would "take all measures necessary to preserve its value and avoid its dismantling."
Vivendi expressed concern in September about what it described as the "disastrous" management of Telecom Italia since Elliott took control.
In October, Vivendi CEO Mr. de Puyfontaine denied that he was considering calling a shareholders' meeting at Telecom Italia to appoint four more board members in a bid to regain control.
WHAT'S NEXT:
On Nov. 18, the board of Telecom Italia will meet to discuss a new CEO appointment.
The dismissal of Mr. Genish deals another **** to Vivendi's claim to power at Telecom Italia, but also deepens the general instability at the telecommunications operator. Bryan Garnier analyst Thomas Coudry says the tug-of-war tactics should weigh on the company's performance. The change in leadership will probably further hamper the company's turnaround plan at a difficult moment, he says, as competition--notably from French telecoms operator Iliad, which recently expanded to Italy--intensifies. Mr. Coudry also expects updated guidance.
Write to Cristina Roca at
cristina.roca@dowjones.com, @_cristinaroca and Pietro Lombardi at
pietro.lombardi@dowjones.com
(END) Dow Jones Newswires
16-11-18 1347GMT
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