Fighting Billionaires Need to Back Off In Italy
(Bloomberg Opinion) -- Even amid the distraction of open conflict between his two biggest investors, Telecom Italia SpA CEO Amos Genish is somehow managing to keep the carrier on track to meet his turnaround plans.
It’s a healthy reminder to Vivendi SA and activist fund Elliott Management Corp. to temper their more combative instincts and let the respected telecoms executive get on with the job. This applies just as much to Paul Singer’s hedge fund as it does to Vincent Bollore’s French media conglomerate.
In a March strategy review, Genish emphasized the need to control costs and improve automation at the business. That seems to be paying off, as operating free cash flow jumped by 51 percent to 903 million euros ($1.1 billion) in the second quarter – no mean feat given the arrival of Xavier Niel’s ultra-cheap Iliad SA in the Italian market. Just 50 days after launching its 5.99 euros per month cellphone contracts in Italy, Niel’s company said last week it had a million subscribers there.
But while Vodafone Plc lost 206,000 Italian mobile users in the three months through June, Telecom Italia increased its number by 96,000. It did so by introducing its own no-frills brand, Kena, a year before Iliad started operating in Italy.
Despite the constant eddy of speculation about Genish's future, he has pledged to continue as CEO. Both Singer and Bollore should be content, because his plan is showing early signs of working.
Genish may be wary of Elliott’s interference, but its victory back in May in replacing Vivendi’s slate of Telecom Italia board member may in fact be helping. Vivendi’s approach to governance was at best slapdash, while it appeared to be interfering operationally and hadn’t articulated clearly how the carrier fit into its broader European collection of assets. Without those risks – and with the Italian government less suspicious of an effective French takeover of the company – Telecom Italia’s future seems a little more solid.
Yes, the shares have fallen back sharply in recent months, in part because of the feeling that Elliott has watered down its more radical ideas for the company such as selling or spinning off its Italian networks unit. But Genish certainly seems more open to disposing of non-core assets to boost shareholder returns and help deleverage. (Telecom Italia’s ratio of debt to earnings is still among the highest of its peers.)
There are talks to sell its Sparkle undersea-cable business, Bloomberg News has reported, while the Inwit SpA wireless towers division is well-placed to take part in European consolidation in that industry. The Brazilian mobile phone unit is growing at a decent clip but offers few synergies with the rest of the group, so that’s another option. The sale of a minority stake in the Italian network shouldn’t be ruled out either.
Vivendi is said to be considering a special investor meeting in the autumn to try to wrestle back control of Telecom Italia. But so long as Genish is being allowed to proceed with his industrial transformation, it may be more prudent to avoid further disruption.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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