Telecom Italia Revamp at Risk as CEO Clashes With Vivendi

(Bloomberg) -- Mounting tensions between Telecom Italia SpA’s chief executive officer and its biggest shareholder, Vivendi SA, are threatening to bog down the carrier’s turnaround progress and put an early end to Flavio Cattaneo’s 16-month tenure.

Cattaneo is negotiating a possible exit after the dispute escalated in recent weeks, according to people familiar with the matter. Cattaneo is concerned that he can no longer manage Italy’s largest phone carrier the way he wants, and doesn’t want to risk tarnishing his image and reputation by staying, said the people, who asked not to be identified discussing private talks. Vivendi, meanwhile, is unhappy with the CEO’s recent politically charged comments, the people said.

Cattaneo, a media-industry veteran, came on in March 2016 with Vivendi’s support and a mission to revitalize the former monopoly. While he has overseen domestic cost-cutting and wrung more revenue from broadband investments, the stock has declined about 17 percent during his tenure. Vivendi, the French media company led by Chairman Vincent Bollore, has meanwhile grown concerned that Cattaneo’s combative style has damaged relations with the government.

While changing CEOs won’t help the cost-cutting process, “we also acknowledge that Cattaneo reached a sort of breaking point in the dispute with the government, which is not appropriate for an incumbent operating in a regulated sector,” analysts at Banca IMI said in a research note.

Cattaneo, 54, may leave Telecom Italia after reporting first-half results on July 27, two of the people said. A spokesman for the Milan-based carrier denied there were tensions and said there aren’t any discussions about the CEO’s departure. A Vivendi spokesman declined to comment.

Telecom Italia fell 1.8 percent to 79 euro cents on Monday in Milan, Monday, the most in six weeks, and was the second-worst performer in Milan’s FTSE MIB Index. The company has a market value of 15.8 billion euros ($18.1 billion).

“This noise is not helping, as it could divert attention from the great results the company is achieving in terms of restructuring the core business and relaunching the top-line growth,” Fabio Pavan, an analyst at Mediobanca in Milan, wrote in a note to clients Monday.

Vivendi is considering naming its chief convergence officer, Amos Genish, as one of the executives to run Telecom Italia, though he wouldn’t be CEO, two of the people said. Deputy Chairman Giuseppe Recchi also would take on some of Cattaneo’s duties dealing with the government should the current CEO leave, in an arrangement that hasn’t yet been fully worked out, the people said.

Appointing Genish as general manager would be less politically problematic than naming him CEO, because he isn’t Italian. Genish has a successful track record, most recently as CEO of Telefonica SA’s Brazilian unit. Before that, he was co-founder and head of GVT Holding SA, a Brazilian telecommunications company that was controlled by Vivendi for a time.

No final decisions have been made, and Cattaneo and Vivendi could resolve their differences and decide he should stay as Telecom Italia’s chief, the people said.

Cattaneo’s contract calls for him to get about 40 million euros in shares and cash if he leaves the company while it’s on track to beat its 2018 financial targets, according to a “special award” clause he arranged when he was hired. The bonus is linked to targets for boosting operating profit and cutting expenses and debt.

In the last few weeks, Cattaneo and Telecom Italia clashed with the Italian government over telecommunications coverage in rural areas. The government engaged Open Fiber, a joint venture between Italy’s state lender CDP and Enel SpA, to build a new national fiber network.

Telecom Italia is competing in broadband in rural areas through a project called Cassiopea, a plan that could damage the government’s effort to boost local investments, Claudio De Vincenti, minister for territorial cohesion and southern Italy, said in an interview last month with Corriere della Sera.

In a hearing June 28, Cattaneo told lawmakers that public tenders for fiber networks in rural areas have been designed to ensure victories for Open Fiber. Italy’s minister for Economic Development Carlo Calenda called Cattaneo’s comments unacceptable.

Vivendi, which owns about 24 percent of Telecom Italia, recently won European Union approval to control the phone carrier and installed its CEO, Arnaud de Puyfontaine, as executive chairman of the former Italian monopoly in early June. The Paris-based company, led by billionaire Vincent Bollore, is pushing to create the dominant media group in southern Europe, with assets including pay-TV provider Canal Plus and record label Universal Music Group.

--With assistance from Chiara Remondini

To contact the reporters on this story: Alexandre Boksenbaum-Granier in Paris at aboksenbaumg@bloomberg.net, Daniele Lepido in Milan at dlepido1@bloomberg.net, Tommaso Ebhardt in Milan at tebhardt@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Vidya Root at vroot@bloomberg.net, Kim Robert McLaughlin, Dan Liefgreen