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Crunch Time in Telecom Italia's Battle of the Billionaires: Q&A

Daniele Lepido
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Crunch Time in Telecom Italia's Battle of the Billionaires: Q&A

Crunch Time in Telecom Italia's Battle of the Billionaires: Q&A

(Bloomberg) -- After slugging it out for influence over Telecom Italia SpA for nearly a year, hedge fund billionaire Paul Singer and French corporate raider Vincent Bollore may be heading towards a truce.

Bollore has been trying to win back board control at the indebted carrier since a successful power grab by allies of Singer’s activist fund Elliott Management Corp. last May.

Shareholders will gather at Telecom Italia headquarters in Rozzano near Milan on Friday to decide whether to replace Elliott-backed directors with a new slate proposed by Vivendi SA, the French media company controlled by Bollore’s family.

The likelihood that they will back Vivendi’s nominees appeared to recede this month when three influential advisory groups urged shareholders to reject the proposal. Now Elliott and Vivendi are looking at some form of compromise to end their dispute, according to people with knowledge of the situation.

What is Telecom Italia’s problem?

The carrier has been weighed down by debt for 20 years, the legacy of a hostile takeover. Its problems grew when the government deregulated the industry and rivals began taking its customers. The backbone of the business -- Italy’s dominant landline network -- has been in steady decline as consumers opt for mobile connections instead. Efforts under Vivendi-backed chief executive officer Amos Genish to improve service quality and get users onto higher-paying contracts failed to revive the shares and Elliott’s allies forced him out in November. New CEO Luigi Gubitosi last month wrote down the value of Telecom Italia’s assets by 2.6 billion euros ($2.94 billion). Telecom Italia’s net debt of 26 billion euros is one of the largest in the European industry and it hasn’t paid a dividend on its common shares since 2013.

What do the top shareholders disagree about?

Vivendi saw its Telecom Italia investment as a step to creating a southern European telecom and media powerhouse to rival U.S. giants such as Comcast Corp. and Netflix Inc. Elliott is more interested in cutting costs and selling assets to revive the share price. Vivendi opposes Elliott’s call to sell a majority stake in the landline business.

What could happen at the shareholder meeting?

Elliott got a boost when the advisory firms urged shareholders to reject Vivendi’s proposal to remove five Elliott-backed directors and replace them with five of its own board nominees. Another top-three shareholder, state lender Cassa Depositi e Prestiti, is leaning toward backing Elliott as it agrees with the landline spinoff proposal, according to three people familiar with the matter. None of that bodes well for Vivendi’s chances of winning back control.

What happens if Vivendi’s board slate fails?

CDP could play a crucial role in a truce in which Telecom Italia Chairman Fulvio Conti, who was elected to the board last May on Elliott’s slate, is replaced by a CDP representative, the people said. A possible candidate is CDP chairman and former Goldman Sachs & Co. banker Massimo Tononi, they added. If that’s enough to win Vivendi round, Telecom Italia CEO Gubitosi would get to push ahead with cutting costs and doing deals. He’s already working on a tower-sharing agreement with Vodafone Group Plc to spread the cost of fifth-generation mobile networks. Tononi could not immediately be reached outside business hours.

--With assistance from Tommaso Ebhardt.

To contact the reporter on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net, Thomas Pfeiffer

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