Telecom Italia Molders as Shareholders Feud
Whether the flamboyant Medicis of the fifteenth century or the roguish Silvio Berlusconi of the twenty-first, Italy's powerful business figures have fought in the public and political spotlight for hundreds of years. The latest clash over control of Telecom Italia, a former state-owned monopoly, has enough twists and intrigue to match any historical drama. It would make for a gripping miniseries from Mediaset, a Berlusconi-backed Italian broadcaster and sub-plot in the story.
While the feud is partly about Telecom Italia's strategic direction, it threatens to be a colossal distraction from the Italian operator's real problems. For years, it has been the weakest of western Europe's big telecom incumbents. As rivals chewed into its market share, it looked as ready for digital transformation as Michelangelo's sixteenth-century workshop, and far less artful. Under Flavio Cattaneo, a former CEO deposed by shareholders in 2017 for upsetting politicians, Telecom Italia (TIM) seemed at last to be making progress. The danger now is that assets in need of further renovation are left to molder like an ancient ruin as shareholders bicker. (See Cattaneo Quits as Telecom Italia CEO, Gets €25M, Telecom Italia Plots Digital 'Overlay,' Not Transformation and Telecom Italia Not Ready to Transform, Admits Exec.)
That dispute centers on the role of Vivendi, a French media conglomerate whose 24% stake in Telecom Italia makes it the company's biggest single shareholder. In true activist-shareholder style, Vivendi has managed to seize control of the Telecom Italia board. Arnaud de Puyfontaine, Vivendi's own CEO, has been employed as the executive chairman of Telecom Italia. Amos Genish, Vivendi's former chief convergence officer, replaced Cattaneo as Telecom Italia's CEO last year. (See Telecom Italia Drama: What Is Vivendi Up To? and Vivendi Man Genish Formally Named Telecom Italia CEO.)
Vivendi's involvement in Telecom Italia has met resistance from politicians worried that Italy's biggest operator is in French hands. The Italian government's main telecom objective, like that of other national authorities, is to ensure the country's networks measure up. Vivendi's priority, it seems, is to extend its media empire into southern Europe. It also owns 29% of Mediaset S.p.A. and has previously talked of becoming a pan-European alternative to Netflix Inc. (Nasdaq: NFLX), an online movie and TV business. Telecom Italia could fit into those plans as a distributor of content over its broadband and mobile networks.
Nevertheless, Vivendi has been worried about upsetting Italian politicians. It forced Cattaneo to leave after he was critical of a government-backed broadband initiative. More recently, it has set in motion a plan to spin off its fixed-line division. Although this "NetCo" business will be a wholly owned subsidiary providing wholesale services, the move should make business deals more transparent, preventing Telecom Italia from favoring its own retail business over rivals. It might even presage a future merger of the network with Open Fiber, the government-backed broadband scheme. (See Eurobites: Telecom Italia Sets Fixed-Line Spin-Off in Motion, Telecom Italia to Spin Off Fixed Lines, Increase Automation and Telecom Italia in Broadband Clash With Govt – Reports.)
That spin-off should leave Vivendi to focus on more important strategic matters. Right now, however, the French company finds itself entangled in a shareholder battle with Elliott Management, another activist investor. Holding a 6% stake in Telecom Italia, Elliott is unhappy with Vivendi's management of the company and its lackluster share price performance over the last year.
In recent weeks, Elliott has been trying to topple Vivendi-backed board members. After nominating alternatives last month, ahead of a shareholder meeting planned for April, it saw Vivendi retaliate by drafting its own list of nominees. Vivendi now wants a board seat for Genish. It has also renominated de Puyfontaine as chairman, although his role would be a non-executive one to address concern about his executive influence at both Vivendi and Telecom Italia. Four other Vivendi nominees already occupy seats on the board. Another, Stephane Roussel, is Vivendi's chief operating officer. And Franco Bernabè, a former Telecom Italia CEO, also makes the list. A vote is now scheduled for May 4. (See Eurobites: Turmoil at Telecom Italia Continues as 8 Board Members Resign.)
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