TELECOM ITALIA is no stranger to shareholder feuds. Two years after it was privatised in 1997 Italy’s national operator, also known as TIM, was the subject of a hostile takeover which left it saddled with so much debt that it never fully recovered. It has gone through four chief executives in four years. Ownership of the company, which has a market value of €11bn ($12bn), is fragmented and unstable. On March 29th instability was expected to be on display once again at a general meeting. Shareholders were due to vote on a proposal by Vivendi, a French media conglomerate which owns 23.9% of TIM, to replace five directors put forward last May by Elliott, an American activist-investor fund with a 9.5% stake. The spat shows how corporate Italy is changing.
One novelty is the nature of the antagonists. Both are newish shareholders; neither is Italian. Vincent Bolloré, who controls Vivendi, began building a stake in TIM in 2015, as part of a strategy to create a southern European media giant. Fellow billionaire Paul Singer of Elliott started amassing his fund’s stake last year (his fund also has a stake in Hyundai—see article). Rules enacted in the past decade to strengthen minority shareholders’ rights, for instance by allowing them to appoint board members, have made Italy “an ideal battleground” for activist investors, says Luca Enriques, professor of corporate law at Oxford University.
This has helped bring altercations out from behind closed doors and into the open. François Goddard of Enders Analysis, a research firm, says they are “Wall Street style” encounters. Elliott has labelled Vivendi “a profoundly negative and harmful nuisance for the company”. Vivendi called Elliott an “unethical activist fund”, accusing it of “deceiving investors in many ways”. Three proxy advisers, firms which counsel shareholders on how to vote in general meetings (another import from across the Atlantic), recommended rejecting Vivendi’s proposal. Amid the rancour, TIM’s share price has fallen by 30% in the past year.
It is not all change. Domestic investors with deep pockets remain scarce. And the Italian government resists making itself so. To blunt Vivendi’s clout, in 2017 it invoked Italy’s “golden power”, a law entitling it to intervene in strategically important sectors, including telecoms. Cassa Depositi e Prestiti, Italy’s state-controlled investment vehicle, this year doubled its stake in TIM to 9.8%.
Governments and activist hedge funds make for strange bedfellows. Yet Cassa backs Elliott, partly because the fund wants to spin off TIM’s network infrastructure. That fits with the government’s hope to merge it with another network, Open Fiber, in which it has invested heavily. Luigi Gubitosi, TIM’s Elliott-backed boss, says he is open to a deal with Open Fiber, and has announced a network-sharing agreement with Vodafone, its biggest domestic competitor, to speed up the deployment of “fifth-generation” mobile-phone services across Italy.
Mr Gubitosi wants TIM to become a “normal company”, by which he means one that sticks to a plan. Shareholders clashing over visions of future returns may herald a new normal. Wall Street would be proud.
This post was originally posted at https://www.economist.com/business/2019/03/30/elliott-and-vivendi-fight-over-telecom-italia.