April 5, 2018 / 10:40 AM / 7 months ago

Italy buys into Telecom Italia to shield strategic interests

ROME (Reuters) - Italian state lender CDP said on Thursday it would buy a stake of up to 5 percent of Telecom Italia (TIM) (TLIT.MI) to safeguard Rome’s interest in a company seen as strategic, and amidst a struggle between investors over its leadership.

A Telecom Italia tower is pictured in Rome, Italy March 22, 2016. REUTERS/Stefano Rellandini/File Photo/Files

The bank’s decision comes as activist fund Elliott, which has built a potential holding of 5.7 percent in the former phone monopoly, has challenged the way TIM’s biggest shareholder, France’s Vivendi (VIV.PA), manages the group.

CDP, controlled by the Italian Treasury, said its board had approved the investment with a long-term perspective.

“Such an investment falls under CDP’s mission of supporting national strategic infrastructures and aims to help ... the company’s development path ... in a crucial sector,” it said in a statement.

Confirming press reports, a source familiar with the matter had said earlier on Thursday CDP intended to start buying shares immediately with the aim of taking part and voting in TIM’s next shareholder meeting on April 24.

“The objective is for CDP to become a stable and long-term financial shareholder... guaranteeing the ‘Italian-ness’ of the company,” the source said.

The source said CDP would buy the shares on the market or in block orders. The stock closed up 5 percent at 0.7978 euros, giving a 5 percent stake a value of around 600 million euros.

A source familiar with the matter said Vivendi did not regard CDP’s move as hostile and welcomed all investors that added value to the company.

Since first becoming a shareholder in 2015, Vivendi has increasingly tightened its grip on TIM, of which it owns 23.9 percent.

Vivendi’s hands-on approach has led to tensions with the Italian government and Rome eventually used its so-called “golden power” to ensure it had a say in some key decisions.

“What surprises me is they didn’t do it before. It’s a strategic asset, there’s a problem of control, we don’t know what Vivendi wants to do,” said Roberto Lottici, fund manager at Ifigest, who does not currently own TIM shares. “CDP did well to take this safeguarding position.”

CDP’s move follows a decision by TIM to put its network - its most prized asset which analysts have valued at up to 15 billion euros - into a legally separate company (NetCo) fully controlled by the phone incumbent.

Some politicians - and recently also Elliott - have advocated the creation of a single national network via the merger of NetCo with rival Open Fiber, a broadband firm jointly owned by the CDP and state-controlled utility Enel (ENEI.MI).

The two parties that came out strongest in Italian elections last month have both called for a state role in a single national network company.

Last week CDP Chairman Claudio Costamagna said the state lender had held talks with Elliott, without giving details.

Any move on NetCo would require state backing given that it is considered of strategic national importance, so getting CDP on its side would further Elliott’s ambitions for the asset.

The activist fund called last month for six Vivendi-nominated board members, including TIM Chairman and Vivendi CEO Arnaud de Puyfontaine, to be replaced through a vote at this month’s shareholders’ meeting. With a stake of 5 percent, CDP could help Elliott’s cause.

“CDP’s entry in TIM’s share capital could drive the share price in the short term, support Elliott’s plan for the AGM April 24 and back the scenario of a one-single network company with Open Fiber,” broker Banca IMI said in a note.

Following Elliott’s move last month, eight board members nominated by Vivendi resigned, triggering a full board renewal at a separate shareholder meeting called for May 4.

On Thursday, Vivendi presented a new slate of directors for TIM’s board led by the group’s current CEO Amos Genish and including de Puyfontaine as non-executive chairman.

Elliott believes there will be no need for TIM shareholders to choose a new board in May if they back board candidates it supports. Meanwhile TIM says even if Elliott’s candidates are elected on April 24, a new board would be voted in May.

Additional reporting by Valentina Za and Stephen Jewkes in Milan, writing by Giulia Segreti; Editing by Jane Merriman and Susan Fenton

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