By Pietro Lombardi and Marc Navarro Gonzalez 
 

THE NEWS:

 

Telecom Italia SpA's (TIT.MI) Chairman Arnaud de Puyfontaine and other board members resigned on Thursday, forcing a complete reshuffling of the board.

The resignation comes amid a power struggle between shareholder Vivendi SA (VIV.FR) and activist investor Elliott Management, which recently built a minority stake in the Italian company. The resignations are effective before an April 24 shareholders meeting, and Telecom Italia has called another shareholders meeting for May 4 to appoint a new board.

On Friday, Elliott called the resignations an attempt to delay acting on its proposed changes for Telecom Italia.

 

THE RATIONALE:

 

Elliott has built a stake of more than 5% in Telecom Italia and is pushing for a management shake-up and strategic changes. It cites strategic missteps, weak share performance, corporate conflicts of interest and governance failings as its motivation.

Telecom Italia operates "an outstanding collection of assets that, if properly managed, should produce substantial, consistent returns," the fund wrote in a letter to shareholders on March 16. It has proposed candidates to replace board members representing Vivendi, and also wants Telecom Italia to sell part of its network operation and dispose or sell part of subsea cable unit Sparkle.

 

VIVENDI'S DEFENSE:

 

Vivendi, which holds almost 24% in Telecom Italia, has said it would examine Elliott's ideas with an open mind but questioned whether its plan would create value. Outgoing Telecom Italia Chairman Arnaud de Puyfontaine is Vivendi's CEO, and the French company had proposed a majority of Telecom's board members.

Telecom Italia recently approved the 2018-20 strategy focused on convergence and content, and the separation of its fixed-access network into a separate legal entity known as Netco, 100% controlled by Telecom Italia.

 

WHAT'S NEXT:

 

Jefferies says the resignations are a tactical response aimed at keeping Vivendi as a long-term presence on the board and will have the effect of delaying a shareholder vote on board composition. They also imply that Elliott's proposal to remove some directors was likely to succeed. Elliott remains well placed to ensure the board isn't controlled by Vivendi after May 4, according to Jefferies.

 

Bryan Garnier says Vivendi may be trying to spur key shareholders to question Elliott's strategy and get its own candidates chosen again when the new board is appointed on May 4. The Italian government backs Elliott's strategy, especially the idea of listing the fixed-access network, and the current turmoil could force Vivendi to adopt a more aggressive stance on the issue, according to Bryan Garnier.

 

Berenberg expects local investors to dissociate themselves from Elliott and present their own slate of independent directors at the next AGM, adding that Vivendi's representatives' resignations from Telecom Italia's board will likely make it harder for Elliott to get support from Italian investors.

 

(END) Dow Jones Newswires

March 23, 2018 11:56 ET (15:56 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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