* Proxy adviser ISS recommends vote for board removal
* Rebel investor says fight will continue if removal
* Shareholder meeting scheduled for Dec. 20
* Telco holding group said would vote against board removal
(Adds rebel investor comments, details)
By Danilo Masoni and Stefano Bernabei
MILAN/ROME, Dec 4 An activist shareholder
campaign to reform Telecom Italia won traction on
Wednesday as influential proxy adviser ISS recommended
institutional investors back a proposal to remove the company
board at a meeting on Dec. 20.
The potentially disruptive vote comes as Italy's biggest
phone company by market share tries to revive years of sluggish
growth and share underperformance while at the same time cutting
its 28 billion euros of debt.
Businessman Marco Fossati, Telecom Italia's No.2 investor
through his 5 percent stake, and small shareholders group ASATI
have proposed to oust the Italian phone company's board, which
they say caters more to the interests of core shareholders such
as Spain's Telefonica than to other investors.
Holding company Telco, which owns 22.4 percent of Telecom
Italia, is controlled by Telefonica together with Italian
financial companies Assicurazioni Generali, Intesa
Sanpaolo and Mediobanca.
If a majority of shareholders ditch the current board, led
by Chief Executive Marco Patuano, they would have to choose a
new slate of directors. Fossati's family holding company Findim
is backing a list of seven new directors presented by Italian
asset managers' association Assogestioni.
"On balance the removal of the board and the presence of the
Assogestioni slate on the Telecom Italia board would likely
prove beneficial to long-term shareholder value," proxy advisers
ISS said in a report for clients seen by Reuters. "Hence, a vote
FOR this item is warranted."
Miguel Carrasco, managing director at proxy solicitor
Proxycensus estimates that institutional investors following the
ISS recommendations could exceed 9 percent of the votes at the
next meeting of Telecom Italia, assuming that more than half of
the company capital is represented.
Yet, top shareholder Telco has already said it would vote
against Fossati's proposal.
Speaking at a conference in Rome, Fossati said there might
not be enough support to approve his proposal but vowed to
continue to fight to improve governance at Telecom Italia.
Fossati's holding company has lost more than half of the money
it invested in Telecom Italia since 2007. The same is true for
thousands of retail investors.
"We might not have the number of votes (to remove the
board)... but we are committed," Fossati said on the sidelines
of the conference. "This will not finish in December.
The ISS report and those from other proxy advisors will
influence the vote of foreign institutional investors, which
represent nearly 50 percent of Telecom Italia's capital base, on
"Further more if Glass Lewis and other proxy advisors such
as Manifest & Pirc follow suit, then Telecom could be in for a
real shock," Carrasco said.
But small proxy advisor firm ECGS has recommended voting
against Fossati's proposal, citing risks of a lack of leadership
although it acknowledged a possible conflict of interest for
Telefonica, which competes against Telecom Italia in Brazil.
The dissident investors are concerned that Telefonica could
force a sale of Telecom Italia's prized Brazilian unit TIM
Pariticipacoes. They have also criticised Telecom
Italia's recent issue of a convertible bond, saying it penalised
If the activist campaign fails, Telecom Italia will continue
with a strategy outlined last month by CEO Patuano for assets
sales to fix its balance sheet and fund investments.
Early data from an electronic voting platform showed last
week that funds owning more than 60 million Telecom Italia
shares, or about 0.5 percent of the total, were voting against
the proposed board removal, while holders of over 20 million
shares abstained. None voted in favour.
(Additional reporting by Maria Pia Quaglia, Editing by David
Holmes and David Evans)