Italian State Bank Weighs Doubling Stake in Telecom Italia

(Bloomberg) -- The Italian state lender that’s backing Elliott Management Corp. in a battle for the future of Telecom Italia SpA is considering doubling its stake in the former phone monopoly, people familiar with the matter said.

Cassa Depositi e Prestiti SpA was authorized by its board to buy as much as 10 percent of Telecom Italia’s stock if a management plan -- including a spinoff of the landline business -- delivers value, said the people, who asked not to be identified because the deliberations aren’t public. Elliott, a U.S. activist fund, is fighting with Vivendi SA of France over the phone company’s strategy.

Telecom Italia shares rose as much as 7.8 percent in early Milan trading on Friday, with CDP’s move offering more certainty to investors that Elliott may prevail. That’s the biggest intraday gain since July 2016.

The increased state intervention comes at a critical time in the conflict between Paris-based Vivendi, Telecom Italia’s largest shareholder, and Elliott, which controls the board. CDP supported Elliott’s successful board coup against Vivendi last May, and the investors are set to clash at Telecom Italia’s annual meeting on March 29, where Vivendi will seek backing for a new board slate.

CDP now owns about a 5 percent stake in Telecom Italia. At the current price, doubling its holding would represent an investment of about 500 million euros ($564 million), according to a Bloomberg calculation. Vivendi holds 24 percent and Elliott holds 9.6 percent. Elliott raised its stake in Telecom Italia last month and may boost it further, people familiar with the matter said at the time.

“If CDP and Elliott raise their stake to 10 percent and 15 percent respectively, Vivendi could have more difficulties in removing five board members during next annual meeting,” Pietro Solidoro, an analyst at Fidentiis, wrote in a note.

Ultrafast Broadband

A critical element of CDP’s vision for Telecom Italia is the spinoff of its landline network, an asset valued by analysts at about 15 billion euros, said the people familiar with the matter. It’s seen as a way to spur investment in ultrafast broadband networks in Italy, which lags behind its European peers for internet speeds.

The lender on Thursday disclosed that it will lift its stake in Telecom Italia, without giving details, and said in a statement that the move “is consistent with the institutional mission in supporting the national strategic infrastructures.” A spokesman for CDP declined to comment further, as did a spokesman for Telecom Italia.

Italy’s populist government is tightening its grip on some of the nation’s biggest companies, from Telecom Italia to troubled airline and former flag-carrier Alitalia SpA. Similarly in France, the government is considering buying out minority shareholders of Electricite de France SA to help replace the country’s nuclear-power backbone.

New Strategy

Telecom Italia Chief Executive Officer Luigi Gubitosi, put in place by board allies of Elliott in November after the ouster of Vivendi-backed Amos Genish, is preparing to announce a new strategy for the carrier next week. He needs a plan for the grid, at the center of the conflict between Elliott and Vivendi and a focus of the government, which wants a single national network.

Italy’s communications regulator complicated matters last month by rejecting a proposal by Gubitosi’s predecessor to legally separate the network, a move that would set up the business for potential deals. The legal separation could be a step toward the full spinoff that Elliott is seeking. Vivendi has pushed for the carrier to keep control of the grid.

Telecom Italia is also in talks with smaller rival Open Fiber. One option is a merger of the two networks, people familiar with the matter said last month. Open Fiber is a joint venture between the state lender, which owns half of it, and Italy’s biggest utility, Enel SpA.

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