April 18, 2018 / 9:48 AM / a year ago

Telecom Italia calls Elliott proposals premature and unfeasible

MILAN (Reuters) - Telecom Italia’s (TIM) (TLIT.MI) management defended its strategy on Wednesday, saying alternative moves proposed by activist fund Elliott Advisers were premature, unfeasible and carried financial and execution risks.

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

Elliott, now TIM’s second-largest investor with a 9 percent stake, is pushing for a shakeup of the Italian phone company.

It has proposed selling a majority stake in TIM’s soon-to-be created network company and merging it with local rival Open Fiber. It also said TIM’s Brazilian business (TIMP3.SA) could be merged with a local peer and Italy’s biggest phone group should further reduce its stake in tower unit INWIT (INWT.MI).

The activist fund, which is seeking to replace six of the board candidates nominated by top shareholder Vivendi (VIV.PA), has also said it would push to reintroduce dividends and convert TIM’s savings shares into ordinary ones.

TIM management, in a presentation to investors, said it had evaluated all the actions proposed by Elliott, but decided they were either premature or unfeasible to be included in its current strategy, unveiled last month by CEO Amos Genish.

“Furthermore, in the current context and regulatory environment, they would carry material financial and execution implications,” TIM said in the presentation.

Elliott had no immediate comment.

Italy’s biggest phone group added its main objective was to strengthen TIM’s finances and operations to get it back to investment grade rating, and potential asset disposals and premature dividend payments could undermine that goal.

TIM could return to paying dividends - last handed out in 2012 - after investment grade rating metrics are achieved, which management said could happen over the next three years.

The former phone monopoly has already announced plans to put its network assets into a legally separate company, NetCo, but fully controlled by the phone group.

Management said keeping full control of NetCo was the “most sensible action” for now, although it could consider selling a minority stake or a merger with rivals in future.

TIM sold 40 percent of INWIT back in 2015, but does not plan any further disposal at the moment, given the masts’ unit’s importance as the market prepares for the arrival of 5G.

The only proposal TIM is considering regards submarine network unit Sparkle. Elliott said TIM could reduce its ownership of the business or sell it in full.

Elliott and Vivendi will face off for the first time at a shareholder meeting on April 24, but the two investors have been throwing punches since Elliott first said it had taken a position in TIM last month to boost governance and shake up the way the French investor has been running the company.

Elliott has said “poor stewardship” under the Vivendi-controlled board had led to “deeply troubling corporate governance issues, a valuation discount and no clear strategic path forward”.

TIM has lost a quarter of its market value since Vivendi first took a stake in mid-2015. The French group has since increasingly tightened its grip on the group, raising concerns in Rome over an asset Italy considers to be of strategic importance.

On Tuesday, Vivendi asked TIM investors to trust its long-term strategy, saying it provided “stability and expertise” to the Italian phone company, in contrast with the “quick fixes” that Elliott would bring.

Elliott has said it fully supported Genish’s business plan.

However, TIM’s management said Elliott’s “break-up plan” was not consistent with its own and would make the group more vulnerable in the face of other large and diversified players.

“(The) current perimeter of TIM maximises strategic flexibility for the future and provides TIM with the right scale to compete in the market,” it said.

Shares in TIM were up 0.4 percent by 0823 GMT, in line with Milan's blue-chip index .FTMIB.

Reporting by Agnieszka Flak; Editing by Susan Fenton

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