Vivendi Abandons Attempt to Replace Telecom Italia Directors

Mar 29 2019, 1:19 PMMar 29 2019, 2:34 PMMarch 29 2019, 1:19 PMMarch 29 2019, 2:34 PM

(Bloomberg) -- Vivendi SA abandoned its latest attempt to win back control of Telecom Italia SpA, handing activist hedge fund Elliott Management Corp. another victory that may prompt conciliatory talks to end a boardroom battle.

Vivendi dropped a plan to replace five of Telecom Italia’s directors at the carrier’s annual meeting near Milan on Friday. The French media company, which owns almost a quarter of the indebted Italian phone company’s shares, had proposed its own slate in an attempt to regain strategic influence after Elliott pushed it aside last May.

A settlement may now be at hand. Bloomberg reported last week that state lender Cassa Depositi e Prestiti may be brokering a compromise to end the dispute, according to people familiar with the matter. A representative for Elliott had no immediate comment.

“Maybe Vivendi decided unilaterally to pull it off, in order to avoid facing rejection of their proposal,” said Thomas Coudry, an analyst at Bryan, Garnier & Co. “But most likely they are in the process of settling the battle with Elliott.”

Vivendi’s controlling shareholder Vincent Bollore has been sparring with the activist fund run by Paul Singer for a year, destabilizing management and delaying efforts to revive the former monopoly, whose shares have lost half of their value in three years. A truce could smooth the path for a more radical restructuring demanded by Elliott, including a spinoff of Telecom Italia’s landline network.

Telecom Italia stock rose as much as 4.6 percent, their biggest intraday gain in six weeks, and were up 2.7 percent as of 1:46 p.m. in Milan.

The carrier has struggled for years with shrinking revenue in its home market and hasn’t paid a dividend on its common shares since 2013. Its dominant landline network has been in steady decline as consumers opt for wireless connections instead and it now faces competition from French discount operator Iliad SA. New Chief Executive Officer Luigi Gubitosi last month wrote down the value of Telecom Italia’s assets by 2.6 billion euros ($2.92 billion).

By pulling its proposal, Vivendi avoided a likely defeat that could have emboldened Elliott. Heading into the meeting, three proxy advisory firms had recommended that shareholders reject Vivendi’s move. One of them, Glass Lewis, said Vivendi had made an unconvincing case for change that relied on “specious allegations.”

Hostile Rhetoric

Vivendi’s move was announced early in the meeting by its head of legal affairs, Caroline Le Masne de Chermont, shortly after Gubitosi called upon shareholders and management to put aside divisions and focus on executing the company’s business plan.

“Vivendi wishes that the Telecom Italia board reflects the company’s shareholder base and is independent, transparent and fully inclusive,” Chermont told the shareholder meeting.

One compromise arrangement under discussion could see Telecom Italia Chairman Fulvio Conti, who was elected to the board last May on Elliott’s slate, being replaced by a CDP representative, two people familiar with the matter said last week. CDP may also seek to gain at least two board members, they said.

The latest overture breaks with the hostile rhetoric leading up to the shareholder gathering. Elliott had published a 40-page presentation defending its plan for the company, raising concerns about Vivendi’s history steering the carrier and attacking Bollore’s corporate governance and business track record.

Vivendi accused Elliott of organizing shadow board meetings at Telecom Italia, flouting market rules on sharing sensitive information and buying financial instruments that left it with interests in Telecom Italia that were out of step with those of other shareholders.