Vivendi unlikely to exert influence over Telecom Italia board in short term
* TI’s board expansion proposal could be “last resort” strategy
* Vivendi could advocate board reshuffle at annual meeting
Vivendi [EPA:VIV] would likely struggle to gain influence over Telecom Italia’s [BIT:TIT] board in the short term even if it reached a 20% stake in the Italian group, according to a corporate governance lawyer, an industry banker and a person familiar close to Telecom Italia.
Vivendi declined to comment on speculation surrounding a possible stake increase in Telecom Italia. A person familiar with Vivendi did not rule out the company could further increase its stake in the telco, citing recent comments made by Chairman and CEO, Vincent Bolloré.
Vivendi, which currently holds a 15.5% stake in TI, breached an important threshold when it crossed the 10% mark, as beyond this threshold it is entitled to force the board to call a shareholder meeting, the lawyer explained.
But Vivendi, which currently has no TI board seats, is unlikely to use this right either to submit to shareholders a proposal to expand the board or change board members, as both routes entail high execution risks and represent a U-turn from the friendly approach it has adopted so far, the lawyer believed.
Telecom Italia’s bylaw states that the board of directors can house a minimum of seven members and a maximum of 19. Currently it is made up of 13 members, of which 11 are considered to be independent with the remaining two being CEO Marco Patuano and Chairman Giuseppe Recchi. The number of members shall remain unchanged until a shareholders’ meeting decides otherwise.
There are other friendlier options Vivendi can pursue to tighten its grip on TI’s board, the lawyer and banker said.
These include promoting the replacement of some of TI’s independent directors with its own representatives (co-optazione) or wait for the annual general meeting next spring to propose the board expansion, they said.
Neither of these options would have a significantly higher prospect of success by Vivendi increasing its current stake to around 20%, as has been rumoured in the press, they said.
At 20% Vivendi would still struggle to control a TI shareholder meeting, meaning that putting forward the proposal of expanding the board at the annual meeting would still be risky, the lawyer noted.
Former controlling shareholder, Telco, has been outnumbered by institutional investors in the recent past despite holding a roughly 22% stake, he said. In recent years, TI shareholder meetings’ turnout has been around 54%-55% of the share capital, he added.
The replacement of an existing independent board member might be the more feasible option to get a position on the board in the shorter term, the lawyer and banker agreed. Vivendi should be able to convince at least one of the directors to resign and then gather board support around one of its representatives for replacement, they noted.
It wouldn’t be surprising if Bolloré initially proposed his daughter, Marie Bolloré, who is currently on Mediobanca’s [BIT:MB] board, the banker said. But, as Vivendi influence over the board gathers pace, Vivendi is likely to turn to super-partes figures, with a strong track record and international standing, he noted.
This banker argued that pushing for the expansion of the board would be used as a “last resort” strategy by Vivendi and suggested instead that the annual meeting could be the right opportunity for the group to advocate a board reshuffle.
Vivendi could have an argument in saying that independent directors originally backed by Telco should step-down, the banker said. Besides Patuano and Recchi, eight of the remaining 11 directors where backed by Telco when they were appointed in 2014 for a three-year mandate.
The annual meeting would be the first occasion for Vivendi to submit this proposal unless the board calls an extraordinary meeting before, the banker said. Telecom Italia’s next annual shareholder meeting is scheduled for 25 May 2016.
Meanwhile, Vivendi is likely to have engaged in discussions with TI’s management over the company’s strategy, the banker and the person close to TI said. But these conversations are still at a very preliminary stage, the person added.
While Vivendi's intentions are hard to read, building a position in TI could be a way to get a strong foothold in a telco group that is likely to be a target rather than a consolidator in the expected cross-border consolidation of the European industry in coming years, the banker suggested. Vivendi could take an active role in pushing TI into a deal, he added.
In the run up to the consolidation wave, Vivendi might want to have TI focusing on deleveraging and strengthening its fibre network to increase the company’s value, the banker said.
Meanwhile, with the conversion of TI’s savings share into ordinaries once again in the spotlight, Vivendi could be looking to increase its stake to compensate for the dilution coming from the transaction, two industry bankers believed.
TI chairman Recchi previously publicly stated that the shares conversion would not be on the agenda of the telco’s 24 September board meeting.
Spokespeople for Telecom Italia and Vivendi declined to comment.