Telecom Italia Says It'll Take Legal Action to Stop Elliott

(Bloomberg) -- Telecom Italia SpA’s board said it will take every legal action necessary to block activist investor Elliott Management Corp. from pushing ahead with its own slate of directors at the company’s next shareholder meeting.

Elliott, Telecom Italia’s second-biggest shareholder after Vivendi SA, wants to replace six Vivendi-backed directors at Italy’s former phone monopoly with its own candidates at the company’s annual general meeting set for April 24. In a statement Monday, Telecom Italia criticized its auditor’s decision saying that vote should go ahead.

Telecom Italia’s board will seek an order from an administrative court to block Elliott from putting its proposal to a shareholder vote at that meeting, said people familiar with the matter who asked not to be identified as the matter is private.

Vivendi sees a better chance of winning a fight with Elliott over the board’s makeup if it can delay the face-off until May 4, when investors will also have a chance to vote on a full slate from the French media conglomerate, the people said. Vivendi’s list includes Telecom Italia’s current chief executive officer, Amos Genish, who has said he has the backing of several funds. The Italian funds association Assogestioni, which typically presents its own list of candidates, won’t this time, the group said in a statement Monday.

The legal action, which could drag on for months, risks further clouding the carrier’s ownership and strategy. Elliott, the fund run by billionaire Paul Singer, disclosed on Monday that it had boosted its stake in Telecom Italia to 8.8 percent. The New York-based hedge fund last month took on Vincent Bollore’s media company by calling for the board shakeup and a breakup of the Italian phone company.

A representative for Elliott declined to comment.

Auditor Decision

Delaying the vote would go against a determination by Telecom Italia’s own auditors, who agreed last month that Elliott’s proposal to replace the Vivendi directors should be heard at the April meeting. The auditors’ move thwarted an earlier attempt by Vivendi to delay the showdown, by having seven Telecom Italia directors it supports resign at the annual meeting to dissolve the board before a May 4 vote. The current Telecom Italia board thinks the auditors made legal mistakes in their decision and weren’t justified in overriding the board, the people added.

Telecom Italia said in the statement that the auditors’ decision was “erroneous and particularly serious.” The company argued that Elliott’s proposal was superseded by the resignation of the majority of the board. It said it plans to proceed with the May meeting and to disassociate itself from the auditors’ decision.

Telecom Italia said it planned to present its case to Italian regulators. The company said that plan was supported by the majority of its board, while five directors voted against it.

‘Absolute Correctness’

The auditors responded in a statement that they were “available to easily explain before any authority or body the absolute correctness of their evaluations as well as the legal grounds and reasons leading to the decision taken.”

Vivendi last week proposed a revised slate of 10 candidates to the Telecom Italia board that included moving Vivendi Chief Executive Officer Arnaud de Puyfontaine from executive chairman to non-executive chairman.

Since then, Elliott’s effort to oust the Vivendi directors has won support from two prominent shareholder advisory firms. On Monday, Institutional Shareholder Services Inc. followed Glass Lewis & Co. in urging Telecom Italia shareholders to vote for Elliott’s proposal.

“At this point, Vivendi appears to be more of a liability than an asset for TIM,” ISS said in its report, using the Telecom Italia brand name. “TIM has had its fair share of management and board turnover over the last few years, and Vivendi’s influence has not brought about stability.”

CEO Churn

ISS noted that under Vivendi’s stewardship, Telecom Italia went through three CEOs in two years and faced recurrent issues with regulators. It also pointed to Vivendi’s souring relationship with the Italian government and its conflicts of interest and also that, as a controlling shareholder, it has restricted strategic alternatives for the company.

Glass Lewis said in its report Saturday that investors should use the opportunity to reshape the board in a manner that would “significantly roll back Vivendi’s representation” and pave the way for other changes. Glass Lewis also said it supported a motion that will be put forth at the annual meeting to extend Genish’s contract by two years.

“We are in favor of the current management team, including the CEO whom we will support at the April 24th AGM,” Elliott wrote in a document Monday, indicating that the fund is specifically targeting Vivendi.

Elliott has criticized Telecom Italia’s strategy and share performance under the influence of Vivendi, which has a 24 percent stake. Telecom Italia’s shares rose 0.1 to percent to 85 cents on Monday in Milan, bringing their gain over the past year to 5.5 percent.

(The attribution of the proposal to Elliott was corrected in an earlier version of this story.)

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