(Bloomberg Gadfly) -- In the battle over who controls Telecom Italia SpA, an important theme is emerging: It helps to be Italian.
The spat between Vincent Bollore's Vivendi SA, the operator's biggest shareholder, and activist hedge fund Elliott Management Corp. claimed its first victims on Thursday after the chairman and six directors resigned from the carrier's board.
At first glance, it looks a heavy blow to Breton billionaire Bollore, whose French media group owns 24 percent of Telecom Italia. A week ago, Elliott proposed replacing six of the 10 Vivendi-nominated directors on the 15-strong board. So when seven stepped down -- all Bollore appointees -- it seemed as though Elliott had got even more than it demanded.
In truth, the situation hasn't changed all that much from when the fund made its demands. This will all still come down to a shareholder vote on whether to back a slate of 10 directors backed by Bollore, or one backed by Elliott (other big shareholders are free to propose their own slate, though it seems unlikely).
The question remains whether investors want to carry on under effective Vivendi control or not? Bollore has even bought himself some time by pushing back a vote on the board's makeup until early May.
The peculiar mechanics of Italian corporate governance mean Vivendi could end up with five nominated board members at Telecom Italia even if it loses the vote -- although for a company that likes control, that wouldn't be much consolation.
Elliott may be American, but it's significant that all six of its board nominees so far are Italian. The activist investor, which has a 5.75 percent stake, highlighted as much in its letter to Telecom Italia shareholders. So don't be surprised if Vincent Bollore gives his competing slate an overwhelmingly Italian flavor.
The nationality of directors has become key because of Telecom Italia's ownership of the country's fixed-line communications network. That's made local regulators nervous about having a French company with effective control. With Elliott evaluating a possible IPO of that business, as Bloomberg News has reported, having a good relationship with those regulators would be crucial.
The difficulty for Bollore is that even if he finds a bunch of Italian directors to match those put forward by his activist rival, it will still be hard for Rome's politicians to forget that effective control would still lie with a French company. It's not as if the previous slate of Vivendi board members were elected by a landslide; they barely squeaked through.
As we've said before on Gadfly, Bollore is a wily old corporate campaigner who's well versed in Italian politics. You'd never rule him out, and investors seem to like the current Telecom Italia CEO Amos Genish -- who may not support Elliott's landline IPO plan.
Bollore will also be painfully aware that Vivendi's bet on Telecom Italia shares has been a losing one so far. Still, he's going to need all of his smarts to come out ahead here.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Alex Webb is a Bloomberg Gadfly 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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