April 19, 2018 / 6:20 AM / 5 months ago

Hedge fund Elliott turns up heat on Vivendi over Telecom Italia

MILAN (Reuters) - Activist fund Elliott turned up the volume in its war of words with Vivendi (VIV.PA) over the French media group’s defence of its strategy for Telecom Italia (TIM) (TLIT.MI), only days before a fight for board seats at Italy’s biggest phone group. Elliott, now TIM’s second-largest investor with a 9 percent stake, is pushing for a shake-up of the way Vivendi has been running the Italian phone incumbent. It is seeking to replace six of Vivendi-nominated board members at a shareholder meeting on Tuesday to improve governance, valuation and strategy.

FILE PHOTO: Telecom Italia tower is seen at the headquarter in Rozzano neighbourhood of Milan, Italy, May 25, 2016. REUTERS/Stefano Rellandini/File Photo

Earlier this week, Vivendi asked TIM investors to trust its long-term strategy, saying it provided “stability and expertise” to the Italian phone company, in contrast with the “quick fixes” that Elliott would bring.

Elliott said Vivendi’s statement “lacks substance”, without properly addressing the issues plaguing the Italian group.

“Under Vivendi’s control, TIM has experienced profound and persistent share price underperformance, made repeated strategic missteps, operated with no regard for proper governance and exhibited numerous conflicts of interest,” Elliott said.

The fund challenged Vivendi’s assertions in a six-page document, saying its actions had divided TIM’s board, citing the fact that a third of board members voted against seeking legal action to block a vote on Elliott’s board proposal.

The French media group owns 24 percent of TIM and last year appointed two-thirds of its board directors, increasingly tightening its grip on the company.

Elliott said Vivendi’s approach only “benefited itself”, criticised the French firm’s strained relationship with Rome and regulators, and said its legal battles in Italy were a proof it failed to become the “positive catalyst” it claimed to be.

Vivendi in turn defended its TIM investment during a meeting of its own shareholders in Paris, with top investor Vincent Bollore brushing off any criticism by saying “we don’t count the chickens until they’re hatched”.

TRUMP CARD

Paul Singer’s fund reiterated it was not against TIM’s management nor the business plan presented last month by CEO Amos Genish, and was “not imposing any strategic plan”.

It also dismissed the suggestion it was seeking to dismantle TIM in search for “quick fixes”, saying it was after an independent board that would create value for all shareholders.

“Contrary to Vivendi’s assertions, Elliott is strongly of the view that it is never premature for companies to create value for their shareholders”, it said.

Beyond the April 24 vote on board seats, the activist fund has proposed selling a majority stake in TIM’s soon-to-be created network company (NetCo) and merging it with local rival Open Fiber. It also said TIM’s Brazilian business (TIMP3.SA) could be combined with a local peer and tabled for TIM to further reduce its stake in tower unit INWIT (INWT.MI).

It also said it would push to reintroduce dividends and convert TIM’s savings shares into ordinary ones.

Its push prompted TIM management to defend its own strategy this week, saying moves proposed by Elliott were premature, unfeasible and carried financial and execution risks.

CEO Genish backed those comments in a newspaper interview on Thursday, saying his own strategy was focused on improving TIM’s operational performance in contrast to Elliott’s quest for short-term financial gain.

Being a close ally of Vincent Bollore but also respected as a telecoms veteran and dealmaker, Genish has been the trump card in the French camp since Elliott’s arrival on the scene.

The activist fund repeated on Thursday it wants Genish to stay on after the board overhaul.

The CEO has made no firm commitment in that regard, although the executive said it would be a “privilege” to keep leading TIM, but should the make-up of the board change, support for his own strategy would need to be re-confirmed.

“We’ll need to see if there is a feeling of trust on the board and if it is aligned with the CEO; it is a question of ‘chemistry’,” he told Il Sole 24 Ore newspaper in an interview.

Additional reporting by Sudip Kar-Gupta and Mathieu Rosemain in PARIS and Maiya Keidan in LONDON; Editing by Elaine Hardcastle and David Evans

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