Billionaire Singer’s French Nemesis Won’t Go Quietly

(Bloomberg Opinion) -- Telecom Italia SpA is again being tossed around by its two biggest shareholders. There must be a solution that keeps them both happy.

Less than a month after activist investor Elliott Management Corp. succeeded in ousting the CEO, Vivendi SA is mounting a fightback intended at regaining control of the board. While Paul Singer’s New York hedge fund has the board seats for now, the Vincent Bollore-controlled media company remains the largest investor. It must be a nightmare for the managers trying to put Italy’s biggest phone operator back on track.

Vivendi plans to call a new shareholder vote on the board’s composition by the end of the week. Elliott’s nominees secured a majority of the seats back in May. The two sides fundamentally disagree on the best way forward for Telecom Italia.

Billionaire Singer’s French Nemesis Won’t Go Quietly

For its part, Elliott wants to sell a majority stake in its fixed network business. It has the backing of the Italian state, which is keen to combine the operations with OpenFiber to create a single Italian fixed network. The move could significantly reduce Telecom Italia’s debt, which at 3.8 times Ebitda is the highest of any European national carrier.

Bollore is meanwhile still backing a turnaround plan started by Amos Genish, the CEO who was fired by the board in November. It doesn’t want to sell the network business, arguing that it’s essential for the effective roll-out of 5G networks.

In both cases, there are significant doubts about motives. While it’s true that the Elliott plan would cut Telecom Italia’s debt, it would no doubt also involve some of the proceeds from any sale being returned to shareholders. Selling control of the most valuable part of the business is a high price for investors to pay for short-term returns, and could make dividends trickier in the longer term.

On the other side, before Elliott showed up, Vivendi hadn’t won many friends with its poorly-explained plan to create a southern European content and telecoms giant through snapping up a minority stake in Telecom Italia. Tuesday’s move suggests Bollore hasn’t abandoned that goal, but it’s still unclear what synergies these types of combination can generate. Shares in AT&T Inc., the U.S. carrier attempting a similar “telecoms plus content” strategy with the acquisition of Time Warner Inc., have fallen 21 percent since that deal was announced.

The best option must lie somewhere between the two competing visions. As I’ve advocated before, separating off the network business and selling a minority stake would probably demonstrate its value to Telecom Italia shareholders and reduce some of the debt burden. And investors in the new unit could probably live with high leverage since fixed networks tend to have longer customer contracts, making their revenue more predictable.

Billionaire Singer’s French Nemesis Won’t Go Quietly

John Malone’s Liberty Global Plc., for instance, has net debt equivalent to 5.7 times Ebitda. At those levels, the earnings from Telecom Italia’s network business could sustain nearly half of the parent’s 25 billion euros of net debt. Proceeds from a minority stake sale could then be used to reduce some of the debt in the operating part of the business.

On current form, there’s likely to be a fight over control of the board every few months. Finding a truce that cuts the debt pile without forcing the company into a dubious Franco-Italian content alliance may put an end to the unhappy cycle.

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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