Proxy adviser tells TIM shareholders to reject Vivendi board plans

By Agnieszka Flak

MILAN (Reuters) - Proxy adviser ISS has recommended that Telecom Italia (TIM) shareholders vote against a proposal by the phone group's top investor Vivendi to replace five board directors appointed by Elliott, ISS said on Monday.

Vivendi and activist investor Elliott have been fighting since last year over how to revive Italy's biggest underperforming phone group, which is saddled with more than 25 billion euros (21.4 billion pounds) of debt.

They will face off again on March 29 when shareholders are to vote on Vivendi's proposal.

Vivendi is seeking the removal of TIM Chairman Fulvio Conti and four other board members, Alfredo Altavilla, Massimo Ferrari, Dante Roscini and Paola Giannotti de Ponti, citing a "substantial lack of independence and disrespect for the most basic and fundamental corporate governance rules".

The French media group, which owns 24 percent of TIM, has alleged that the five board members conspired to replace former CEO Amos Genish, who was removed while on a business trip abroad in November.

In a report released last week, TIM's auditors said they had found irregularities in the way information was shared with the company's board members in the run-up to Genish's ousting.

The auditors said that contrary to a statement by Chairman Conti some information was only shared with board members appointed by Elliott before being brought to the attention of the whole board.

But ISS said Vivendi, which would gain the upper hand on TIM's board if its proposal were approved, had itself a poor track record on governance issues and that another change in the make-up of the board would not help TIM.

"On balance, (Vivendi) has not made a compelling case that change is warranted at TIM - particularly as shareholders are unlikely to benefit from a constant swapping of the board composition as a result of the tug-of-war between the two large shareholders," ISS said.

"Vivendi's arguments are mostly based on governance, though Vivendi's own past actions undermine its moral authority in this case and may actually justify the steps taken by the Elliott- directors," ISS said.

A Vivendi spokesman said the group was not surprised by the ISS verdict. "They generally tend to side with Elliott."

The U.S. hedge fund, which holds just under 10 percent of TIM, wrested board control from Vivendi in May by appointing 10 candidates - two-thirds of the total - to its board after accusing the French investor of serving its own interests.

Last November, one of the Elliott-appointed board directors, Luigi Gubitosi, succeeded Genish at the helm of the former state phone monopoly. Italian state lender CDP, which previously sided with Elliott, has also been raising its stake in TIM in the run up to the March meeting.

"We have no quarrel with Gubitosi, no quarrel with CDP, no quarrel with the Italian government but we have a quarrel with the governance of Elliott," the Vivendi spokesman added.

On Tuesday, Elliott reiterated its position that "Vivendi's nominees are unsupportable, lack true independence and would simply return control to a group with demonstrable and unacceptable conflicts of interest".

Since becoming a TIM investor early last year, Elliott has advocated for a more radical shake-up of the telecoms group which includes plans to spin off its network infrastructure, sell assets and convert savings shares into ordinary ones.

(Reporting by Agnieszka Flak, editing by Silvia Aloisi and Jane Merriman)