Elliott Believes a Truly Independent Board is Required to Improve Governance and Performance at Telecom Italia
Elliott Advisors (UK) Limited (“Elliott”), which advises funds (together “Elliott”) which collectively have an interest in the ordinary and saving shares of Telecom Italia (the “Company”, “TIM”), today confirmed in a letter to TIM shareholders that it has nominated six independent, highly qualified candidates to the Company’s Board (the “Shareholder Nominees”). Elliott’s letter outlines the case for a truly independent Board and the opportunity for significant value creation through improved governance at Telecom Italia. The biographies of the Shareholder Nominees together with the full text of the letter can be found below.
TIM is uniquely positioned in the Italian market and operates an outstanding collection of assets that, if properly managed, should produce substantial, consistent returns for its shareholders while providing a vital, high quality public service. However, poor stewardship under the Vivendi-controlled Board has resulted in deeply troubling corporate governance issues, a valuation discount and no clear strategic path forward. Elliott’s letter details the impediments to value creation under Vivendi’s leadership and makes the case for change under the following categories:
1) Profound and Persistent Share Price Underperformance;
2) Strategic Failures;
3) Corporate Governance and Conflicts of Interest.
Elliott believes a board composed of truly independent directors is the most efficient and effective way to improve governance and performance at TIM. Elliott believes that these six candidates can empower the Board to correct the persistent undervaluation that is undeniably present at TIM. As a shareholder, Elliott is excited that individuals of this calibre have stepped forward and believes they bring fresh perspectives and accountability to the TIM Board. Elliott seeks to play a positive constructive role in this process and to act as a catalyst in TIM’s return to value creation.
Full text of the letter appears below.
Elliott Management Corporation manages two multi-strategy funds which combined have over $34 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, high net worth individuals and families, 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 together closely. We believe strongly in the value conclusions that we have drawn as a result of this effort.
Elliott today launched a new website, www.TransformingTIM.com, where the Shareholder Letter and Shareholder Nominee biographies are available to view and download. Interested parties are encouraged to visit the website to receive additional information and to sign up for future updates.
March 16, 2018
Dear Fellow Telecom Italia Shareholder:
We write to you on behalf of the funds that we advise (together “Elliott”), which collectively have a significant interest in the ordinary and saving shares of Telecom Italia (the “Company”, “TIM”). Elliott now holds in excess of 3% of the ordinary shares of the Company together with financial instruments which means that Elliott holds a disclosable interest in over 5% of the ordinary shares of the Company. The appropriate CONSOB filings will be made.
Elliott today confirms that it has nominated six independent, highly qualified candidates to the Company’s Board (the “Shareholder Nominees”), to replace six of the directors nominated by Vivendi. The Shareholder Nominees each bring substantial expertise and deep experience, and they were selected specifically for their ability to empower the current Board to act on the significant value-creation opportunity present at TIM today. Biographies of the Shareholder Nominees can be found below.
Elliott believes that TIM is uniquely positioned in the Italian market and operates an outstanding collection of assets that, if properly managed, should produce substantial, consistent returns for its shareholders while providing a vital, high-quality public service. However, poor stewardship under the Vivendi-controlled Board has resulted in deeply troubling corporate governance issues, a valuation discount and strategic failures. Elliott believes a truly independent Board is now required to improve both governance and performance at TIM.
As a TIM shareholder, Elliott’s 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 analysing and understanding TIM, including hiring numerous advisors and consultants with whom we have worked closely. Based on our extensive research we strongly believe that there could be material upside for shareholders if an independent board were to take steps to improve strategic direction and governance.
Elliott believes that the Company is managed in the interest of Vivendi and to the detriment of all other TIM shareholders. Yet, Vivendi controls only 24% of the ordinary shares and its stake represents only 18% of total equity value. The objective of this letter is to lay out our case for change, which is set out under the following three categories:
1. Profound and Persistent Share Price Underperformance
2. Strategic Failures
3. Corporate Governance Failings and Conflicts of Interest
Our letter concludes there is a clear pathway to transforming TIM, improving its governance and realising the Company’s full potential. Elliott seeks to play a positive, constructive role in this process and to act as a catalyst in TIM’s return to value creation.
1) Profound and Persistent Share Price Underperformance
TIM’s stock remains significantly undervalued notwithstanding improving fundamentals. Despite recent returns to growth in both revenue and EBITDA after years of persistent declines, and even with substantial investments in upgrading the Company’s network (which began before Vivendi became a shareholder), the value of TIM’s ordinary shares fell more than 35% from when Vivendi nominees joined TIM’s Board of Directors in December 2015 to the day before our interest in the Company was made public (Note: Once Elliott’s ownership of stock and interest in the Company was made public, the stock price rose). Elliott believes that this share price underperformance reflects investors’ concerns about both the strategic direction and growing governance issues at the Company.
2) Strategic Failures
Vivendi’s track record of stewardship is marred by repeated missteps, including the following examples:
Obsolete Capital Structure
Elliott believes a fully independent Board should and would consider taking steps to simplify the Company’s obsolete capital structure so as to allow all shares the same voting and economic rights. The current structure allows disproportionate voting rights to Vivendi compared to its monetary investment due to the existence of non-voting saving shares. Vivendi blocked such share class conversion at TIM’s December 2015 AGM, to further its own interests at the expense of minority shareholders. While Vivendi declared at the time that it was in favour of a conversion, in the more than two years since it has failed to propose a new plan for it.
Limited Progress on Structural Transformations
Elliott believes that a separate listing or partial sale of NetCo following its separation would maximise its value, and has the potential to reduce debt, driving returns for all TIM shareholders. Even though the current board has approved the project for the voluntary separation of the fixed line access network, the Company remains committed to owning it outright. Conversely, we believe widening NetCo’s share register would create value for TIM shareholders and might hasten the creation of one single national network. We would encourage the new Board to examine:
- Separating and selling part of NetCo, yet maintaining a stake;
- Disposing or selling part of Sparkle;
- Using proceeds to reduce leverage at TIM;
- Reintroducing a dividend.
3) Corporate Governance Failings and Conflicts of Interest
There are several recent examples of Vivendi exercising its control without regard for minority shareholders’ divergent interests, for instance:
- The proposed joint venture between TIM and Canal Plus was initially treated by the Board as a related party transaction with “minor relevance”, thus avoiding the requirement for a binding opinion from the independent directors. Subsequently, independent directors and statutory auditors flagged this issue several times. After CONSOB considered the issue, TIM reclassified the joint venture as a related party transaction with “major relevance”;
- In January 2017, TIM awarded an advertising mandate (rumoured to be worth around €100 million) to Havas, which is owned by Vivendi;
- Michel Sibony was appointed Head of the Procurement Unit and Real Estate Department at TIM’s March 6th 2018 Board meeting, despite holding several functions within the Bolloré Group, Havas, and Vivendi (potential suppliers to TIM). He was recently appointed Chief Value Officer at Vivendi;
- Felicité Herzog has been proposed as an “independent” director on the Company’s board by Vivendi and elected at both the December 2015 and May 2017 AGMs; she is also a member of the Company’s Control and Risk Committee. Notwithstanding her “independence”, Ms. Herzog is Chair and Founder of the consulting company Apremont Conseil whose business relationships with both the Bollorè Group and Vivendi are currently being investigated by CONSOB.
- The European Commission detected horizontal, vertical and conglomerate effects caused by Vivendi’s simultaneous de-facto control of the Company and significant stake in Mediaset. To solve this, Vivendi has forced TIM to sell its 70% stake in Persidera. The sale is due to be executed by a trustee without stipulating a minimum price. We struggle to see how this process will maximise value for shareholders;
- Vivendi has broken the Gasparri law, building both a controlling stake in the Company and a large stake in Mediaset, which has further impaired Vivendi’s relationship with the Italian regulator and other Italian bodies;
- Non-independent directors were exempted from non-competition requirements at the last AGM, despite the dissent of most investors other than Vivendi;
- Vivendi lost two TIM CEOs in two years, spending €25 million on severance for Flavio Cattaneo alone, after only 16 months in service, despite the Board of Auditors expressing a negative opinion on his initial compensation package;
- Vivendi’s strained relationship with Mediaset limits crucial content acquisition options at fair market value for the Company.
In addition to its evident multi-faceted governance shortcomings and multiple conflicts of interest, Vivendi’s actions have undermined its relationship with the Italian Government and the telecoms regulator, both of which are severely detrimental for a regulated business.
Elliott does not wish to control TIM, but merely catalyse change to ensure that the Company is managed for the benefit of all shareholders. The Company’s shares trade at a significant discount to peers, while troubling governance issues have resulted in investors no longer being able to trust Vivendi.
Elliott has watched with growing frustration as the Company has been subject to a series of adverse actions by “controlling” shareholders who have never owned more than 30% of the Company’s voting rights, have never paid an appropriate premium for control and yet have exercised disproportionate control over the Company to serve their own interests, at the expense of minority shareholders.
In conclusion, there is a clear and overwhelming case for change. As a shareholder, Elliott seeks to play a constructive role in the Company’s future. Elliott believes a board composed of truly independent directors is the most efficient and effective way to improve performance and governance at TIM. Accordingly, Elliott has nominated six independent, highly qualified candidates to the Company’s Board in a step towards achieving that goal.
We believe that these six candidates can empower the Board to correct the persistent undervaluation that is undeniably present at TIM. As a shareholder, we are excited that individuals of this calibre have stepped forward and believe they bring fresh perspectives and accountability to the TIM Board. We hope you, our fellow shareholders, will agree.
Elliott Advisors (UK) Ltd.
Fulvio Conti (Italian)
Fulvio served as Enel CEO from 2005 to 2014 where he led the company’s international expansion through several deals including the acquisition of Endesa, the largest electric utility in Spain with a substantial footprint in Latin America. Previously, he joined Enel in 1999 as CFO where he worked on several major transactions including the company’s IPO and listing of Terna, the Italian high-voltage transmission grid.
In 1998 he joined Telecom Italia and held several roles including Managing Director, CFO, and Board Member of TIM and various major subsidiaries.
He has been a director of several significant international companies including Aon (where he is currently director), the Italian Institute of Technology, RCS MediaGroup, Barclays, and served as vice-chairman of Confindustria.
Cavaliere del Lavoro della Repubblica Italiana and Officier de la Légion d'Honneur de la Republique Française.
Massimo Ferrari (Italian)
Currently serves as General Manager Corporate & Finance, Group CFO of Salini Impregilo, a post held since 2013.
He has served as Chief Executive Officer, General Manager and Investment Manager of Capitalia Asset Management SGR, General Manager and member of various internal committees of Fineco Group, and Senior Vice President and Secretary to the Internal Control and Risk Committee of UniCredit Group.
He has also served as Head of Issuer Division of the CONSOB, and member of the Board of Directors of Borsa Italiana S.p.A.
Paola Giannotti De Ponti (Italian)
Since 2016, Paola has been a Director on the Supervisory Committee, Chairwoman of the Risks Committee and a member of the Related Parties Committee of UBI Banca S.p.A.
Since April 2017 she has been a Board Member and member of the Audit and Risk, Corporate Governance and Sustainability Committee of Terna S.p.A.
Previously she sat on the boards of Ansaldo STS S.p.A. and Dresdner Kleinwort Wasserstein SGR. From 2000 to 2012 she was a member of the Council for the United States and Italy. She has held various managerial roles throughout her thirty years of financial sector experience both in Italy and abroad, including Morgan Stanley, Citigroup, Dresdner Bank and BNP Paribas.
Her specific areas of focus have been corporate and investment banking, capital markets, extraordinary operations and project finance. Previous company experience includes Montedison, Sviluppo Finanziaria Milano and The Mac Group.
Luigi Gubitosi (Italian)
Luigi has been Extraordinary Commissioner of Alitalia since May 2017 and Operating Partner of Advent International since October 2015.
He was General Manager of the Italian state broadcaster RAI from July 2012 to August 2015.From November 2011 to July 2012 he served as Country Manager and Head of Corporate and Investment Banking for Bank of America Merrill Lynch in Italy.
From 2007 to 2011 he was CEO of Wind Telecomunicazioni where he joined in 2005 as CFO. He is a professor of Corporate Finance at Università LUISS Guido Carli in Rome. He is also a board member and Chairman of the control committee of Il Sole 24 Ore.
Dante Roscini (Italian)
He has been on the faculty of Harvard Business School for the past decade where he is a member of the Business, Government, and the International Economy Unit.
Before Harvard Business School, Prof. Roscini spent twenty years in senior positions at three leading US investment banks in New York and London.
He is a Senior Fellow of the Foreign Policy Association in New York and of the Atlantic Council in Washington.
Rocco Sabelli (Italian)
Served as CEO of Alitalia from 2009 to 2012 where he successfully restructured the company. Since 2013 he has been an Operating Partner at various Italian Private Equity funds including Clessidra.
He served as CEO of Piaggio from 2003 to 2006 where he acquired Moto Guzzi and Aprilia, as well as listing the company in 2006.
In 1993 he joined Telecom Italia Group where he worked until 2001 in various positions including TIM Managing Director, director of both fixed and mobile business in Italy and responsible of the Wireline Services business unit in addition to the international wholesale business.
Elliott Advisors (UK) Limited
Sarah Rajani, CFA, +44 (0) 20 3009 1818
Verini & Associates
Marcella Verini, +39 (02) 4539 5500
+39 (06) 42171 201
+34 (91) 7012170
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