Elliott Advisors (UK) Limited Response to Vivendi Statements
The latest statements from Vivendi and the Board it controls at Telecom Italia (“TIM” or “the Company”), defending its failed stewardship and attacking the Board of Statutory Auditors, reinforce Elliott’s view that TIM needs a Board composed of truly independent directors who will finally put the interests of shareholders first as it works to improve governance and performance.
Under Vivendi’s control, TIM has experienced profound and persistent share price underperformance, made repeated strategic missteps, operated with no regard for proper governance and exhibited numerous conflicts of interest.
Elliott believes Vivendi’s statement of April 17 (extracts of which appear below), lacks substance and is replete with platitudes that do not remotely address the issues which have plagued TIM under Vivendi’s stewardship. Most notably, Vivendi repeatedly refers to itself as the “main” shareholder in TIM. It is in fact not; it is merely the largest shareholder, and Elliott believes Vivendi’s interests are no more important than those of other TIM shareholders. Furthermore, contrary to Vivendi’s assertions, Elliott is strongly of the view that it is never premature for companies to create value for their shareholders. Finally, when Italian authorities are publicly stating that Vivendi is an “awful” shareholder, it is clear that the status quo is untenable.
It is time for change at Telecom Italia. Elliott believes shareholders need a united board, not one divided and mired in litigation with its own statutory auditors. Shareholders deserve the opportunity to unlock significant value by supporting Elliott’s proposal, which begins with electing a truly independent Board of Directors on April 24.
Extracts from Vivendi’s April 17 statement:
“Telecom Italia had lost more than 70% of its market value in
the previous ten years before Vivendi came on board.”
The negative trend in TIM’s stock price performance has accelerated since Vivendi nominees joined the Board in December 2015. In a little over two years, TIM’s stock has fallen more than 35%1.
“Vivendi has taken an industrial approach to Telecom Italia
which is bringing a real competitive advantage.”
Vivendi’s “industrial approach” has benefited itself, as evidenced by related party transactions allowing Vivendi to reap benefits accruing to its group companies such as Canal Plus and Havas, to the detriment of TIM and its shareholders.
“Under Italian law and governance principles, as the main
shareholder of Telecom Italia Vivendi has acted in the interests of
the company as a whole and has ensured the Board and governance
structures of the business are in full compliance with law.”
There are numerous examples that show Vivendi has acted in its sole interest: these include the blocking of the savings share conversion; breaching both golden power and Gasparri law; appointing non-independent directors; and appointing managers with conflicting roles such as Michel Sibony. Mr. Sibony was appointed Head of the Procurement Unit and Real Estate Department at TIM’s March 6 2018 Board meeting, despite holding several functions within the Bolloré Group, Havas, and Vivendi (potential suppliers to TIM). He was also recently appointed Chief Value Officer at Vivendi.
“As the main shareholder in Telecom Italia, Vivendi can provide
stability and expertise while enabling other shareholders to invest
and participate in the future upside.”
It appears that Vivendi’s approach to telecom assets in the past (SFR, GVT, Maroc Telecom) has been to trade these businesses rather than to promote investment stability through long-term stewardship.
“Vivendi has catalysed a recovery in Telecom Italia’s share
price at a time when telecoms operators in Europe and globally have
suffered a savage derating. […] Telecom Italia stock has outperformed
peers by 17% since June 2017 (Stoxx Europe 600/Telcos index).”
Since Vivendi nominees joined the TIM board the stock has lost over 35% of its value, underperforming the Stoxx Europe 600/Telcos index (SXKP) by 20%. Even if one takes Vivendi’s reference point of June 2017, the outperformance vs. the index was less than 1%2.
“It is that recovery which is now at risk.”
Elliott is not proposing to overhaul Telecom Italia’s management team but rather to address a track record of poor governance and a lack of stewardship, systemic since Vivendi nominees were appointed to the board in December 2015.
“Elliott admitted in a recent document: 'Since 2016, TIM has
started to consistently deliver growing revenue and EBITDA.'”
This underscores Elliott’s point: management is not the source of the problem. The languishing share price performance and growing governance concerns need to be addressed.
“Yet it does not explain how that plan can be implemented with a
The very reason the existing board is divided today is because of Vivendi’s poor stewardship and disregard for best practice corporate governance. The current board is anything but united as evidenced by the recent 10-5 vote on the topic of litigating with the Company’s statutory auditors (the 10 directors who voted in favour of this resolution were each nominated by Vivendi). Elliott agrees a divided board is detrimental to the Company and its shareholders. This division strengthens Elliott’s case to replace six of Vivendi’s nominated directors with new independent and highly qualified board members on April 24.
“…nor does Elliott explain how it can help matters to impose a
new strategy on Amos Genish and his team without the support of the
company’s largest shareholder.”
Elliott is not imposing any strategic plan. Elliott is a shareholder and is proposing independent, highly qualified directors to replace selected Vivendi nominees on the Company’s board.
“To give one example, the deconsolidation of the network
business which has proven a failure in the few countries where it has
Elliott advocates that it is incumbent upon the independent board of directors to explore and evaluate various alternatives to unlock value for all shareholders. The Czech Republic, the only other European example of a voluntary network separation in the telecom sector, has created significant value for shareholders of O2 Czech (ServiceCo), as evidenced by total shareholder return of almost 400% since June 2015.3
“Perhaps Vivendi in the past underestimated some of Italy’s
In Elliott’s view, respecting the rule of law (the golden power and Gasparri law), respecting the rights of minority shareholders, appointing highly qualified, independent directors and respecting the board of statutory auditors are not unique features of Italy, but common features of advanced market economies.
“We recognize that the Italian government and regulators have an
important stake in ensuring that Telecom Italia is well run and able
to fulfil its role as the backbone of Italian communications
Vivendi has failed to cooperate with the regulator and the government not only in Telecom Italia but also in its previous attempted hostile takeover of Mediaset.
“Over time the conflict between certain investors’ demands for
quick fixes and the true interest of the Italian nation which lies in
a strong, independent Telecom Italia will become more apparent.”
Telecom Italia’s shareholders are focused on value creation for all shareholders, delivered by a strong management team, and overseen by a truly independent board with appropriate governance in place. The current slate proposed by Vivendi will, in Elliott’s view, be unable to foster the independent corporate governance that the company so crucially requires.
“Led by a main shareholder with a long-term industrial vision
and the necessary commitment, the management can focus on delivering
Elliott believes management should be led by the current CEO and the board of directors rather than by a single shareholder. Elliott has been unable to identify any previous example of a telecom company requiring a media company to control its board in order to create value for its shareholders.
“Vivendi has, we believe, demonstrated that commitment, and has
been a positive catalyst for change.”
Elliott believes share price underperformance, CONSOB investigations, independent directors’ and Italian ministers’ comments, clearly show that Vivendi has failed in its stewardship role and has failed to be a positive catalyst for shareholder value creation at TIM.
“We have proposed a slate of candidates for the Board who are
fully supportive of the management team and their approach.”
Elliott, along with proxy advisors Glass Lewis, ISS and Frontis Governance, believes its slate to be a material improvement to that put forward by Vivendi, in terms of credibility, suitable experience and the support it can provide the management team.
“In drawing up that slate we have listened attentively to the
views of others.”
Vivendi may have listened to the views of others but it has evidently ignored them: Vivendi has presented mostly the same directors who resigned in March 2018, including those whom they claim to be independent.
Elliott Management Corporation manages two multi-strategy funds which combined have approximately $35 billion of assets under management. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest funds of its kind under continuous management. The Elliott funds’ investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, and employees of the firm. Elliott Advisors (UK) Limited is an affiliate of Elliott Management Corporation.
Our approach to TIM is consistent with our approach to many of our current and previous investments. We have invested a significant amount of time and resources into understanding TIM, including hiring numerous advisors and consultants with whom we have worked closely together with our business associates. We believe strongly in the value conclusions that we have drawn as a result of this effort.
|1||Calculated from 15-Dec-2015 to 05-Mar-2018 (latest undisturbed pricing date before Elliott interest in TIM was disclosed).|
|2||Calculated from 01-Jun-2017 to 05-Mar-2018 (latest undisturbed pricing date before Elliott interest in TIM was disclosed).|
|3||O2 Czech Republic (TELEC CP) total shareholder return since 01-Jun-2015 (date of CETIN separation) to 17-Apr-2018.|
Elliott Advisors (UK) Limited
Sarah Rajani CFA, +44 (0) 20 3009 1475
Verini & Associates
Marcella Verini, +39 (02) 4539 5500
+39 (06) 42171 201
+34 (91) 7012170
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