RPT-Telecom Italia board set for showdown with shareholders

Fri Dec 20, 2013 2:18am EST

By Danilo Masoni

MILAN Dec 19 (Reuters) - Telecom Italia's shareholders meet on Friday to decide whether to oust the entire board in an attempt by dissident investors to weaken the increasingly powerful influence of rival Spanish group Telefonica.

The potentially disruptive decision comes as Telecom Italia struggles to revive years of sluggish growth and Chief Executive Marco Patuano has to move ahead with asset sales to help cut debt of more than 28 billion euros ($39 billion).

The rebel investors led by businessman Marco Fossati fear that without their intervention the company will rush into a sale below full price of its Brazilian mobile business TIM Participacoes, a smaller rival to Telefonica's Vivo .

They have also criticised Telecom Italia's recent issue of a 1.3 billion euro convertible bond, contending that they were excluded from the dilutive deal, as well as the recent sale of its 22.7 percent key stake in Telecom Argentina for $960 million.

If the activist campaign fails, Telecom Italia will continue with a strategy outlined last month by Patuano for asset sales to fix its balance sheet and fund much-needed investments in its ageing domestic network.

Friday's vote pits Fossati, Telecom Italia's third-biggest shareholder with a 5 percent stake, against Telco, the investment vehicle owned by Telefonica and a group of Italian financial institutions that managed with its 22.4 percent stake to appoint the majority of the current board.

Fossati initially appeared to have little chance of success but backing from two groups who advise institutional investors on which way to vote at such meetings, MSCI's ISS and Glass Lewis, has made the outcome of the vote more uncertain.

INVESTOR BACKING

So far more than 53 percent of Telecom Italia investors have registered for the meeting, meaning Telco will need the backing of other investors to fend off the board removal.

To go through, the proposal needs a majority of 50 percent plus one vote of shareholders at the meeting.

U.S. money manager BlackRock has raised its stake in Telecom Italia to around 10 percent, making it the second largest investor in the company with a potentially pivotal role in the vote, but has not disclosed its intentions.

"We're closer to victory than we could have imagined," Fossati told Italy daily Corriere della Sera this week. "But even if the board is not removed, simply having most of the funds on our side will be a strong signal."

Telefonica, Europe's largest phone company, has 66 percent of Telco and recently secured an option to gradually take over the stakes of its partners Assicurazioni Generali, Intesa Sanpaolo and Mediobanca from 2014.

As a direct result of that deal Brazil's anti-trust watchdog has told Telefonica to either sell its indirect interest in TIM Participacoes, which has a market value of nearly $12 billion and is 67 percent owned by Telecom Italia, or seek a new partner for its own $20 billion local business, Vivo.

Telefonica's goal, according to sources familiar with its plans, is break up TIM Participacoes and divide its assets and network up among Vivo and the other two mobile operators in Brazil, America Movil and Oi.

Several sources familiar with the matter said on Wednesday that Telefonica would get 18 months to reach a solution.