Investors are voting on whether to elect a board of directors primarily made up of Elliott or Vivendi nominees. The winner will see 10 of its nominees win seats, with the loser guaranteed five. Between them, the two sides have published 33 press releases since the fight started, interspersed with press appearances to shoot flak in each other’s direction.
It’s not easy clearing away the smoke, but the opposing positions are something like this:
Elliott : The hedge fund activist wants to divest network infrastructure business Sparkle, sell a minority stake in the national Italian network known as NetCo, and convert shares with added voting rights — largely controlled by Vivendi — into ordinary shares. Per Elliott, the moves could add as much as 80 euro cents to the shares, which have largely hovered between 80 cents and 90 cents since March.
Elliott has concentrated its fire on governance, easily the weakest suit of Vivendi and its controlling Bollore family. Elliott says the Bollores exert too much influence on the Italian carrier, given that Vivendi only has a 24 percent stake. The activist points to practices it claims aren’t in the interest of most shareholders: hiring Vivendi’s Havas to handle Telecom Italia’s marketing, appointing Vivendi managers to top jobs, and forming a content joint venture with Vivendi’s Canal Plus.
Vivendi: For its part, the French media group asserts that it’s a long-term investor which backs the industrial plan of CEO Amos Genish, a respected telecoms veteran appointed in July. He wants the company to concentrate on digital services and convergence, where customers pay for a palette of products including fixed-line, mobile and content. He says he can lift ultra-fast broadband customer numbers from 1.8 million to more than 5 million by 2020, and increase cumulative free cash flow to 4.5 billion euros ($5.4 billion) between 2018 and 2020, up from 1.6 billion euros in the prior three-year period.
Elliott says it backs Genish’s plan too, but there’s disagreement over whether selling part of the Italian network unit would undermine it.
The bigger problem for Vivendi is what it doesn’t say. Family patriarch Vincent Bollore has never convincingly articulated his goals for the Telecom Italia stake. Early efforts to team up with Silvio Berlusconi’s broadcaster Mediaset SpA failed, and any hopes of resurrecting a deal dimmed when Mediaset teamed up with Sky Plc’s Italian arm. Telecom Italia shares have languished since Vivendi got involved in 2015.
Elliott has at least spelled out how it means to create shareholder value. Vivendi might argue that Elliott is only in it for the short haul, but what does that matter for investors if it generates real returns and sets the company on the right track?
Nor is it clear why selling a minority stake in the Italian network business would destroy Genish’s turnaround. He has implied he may step down if Elliott wins. But it would seem an odd response on his part if the new board still backed his strategy.
It comes down to this: Elliott has outlined a proposal to improve shareholder returns. No one can say what Bollore wants ultimately. Elliott’s suggestions aren’t flawless; its ideas for the Italian fixed network have chopped and changed. But governance would be clearer if the hedge fund wins. And faith in where the company’s headed wouldn’t be blind.
©2018 Bloomberg L.P.