Telecom Italia’s new boss deepens activist shareholder’s clout

Bloomberg

Telecom Italia SpA’s decision to name Luigi Gubitosi as its new chief executive officer marks another victory for Elliott Management Corp in its push for a radical overhaul of the embattled phone company.
The board, stacked with directors representing billionaire Paul Singer’s fund, chose the former Merrill Lynch banker at a meeting. Gubitosi succeeds Amos Genish, who was ousted last week for resisting the activist’s call for a spinoff of the landline network. Bloomberg reported that Gubitosi was set to become CEO.
The appointment entrenches Elliott’s influence and deals a blow to Telecom Italia’s largest shareholder, Vivendi SA, which is against the carrier ceding control of the grid and was opposed to Genish’s removal. Gubitosi, 57, is the fifth CEO of the former phone monopoly in five years and has the momentous task of restoring stability while a fight between the company’s two biggest investors threatens further upheaval.
The new CEO takes the reins at a company weighed down by net debt of 25 billion euros ($29 billion) and heavy pension liabilities. The carrier hasn’t paid a dividend on its ordinary shares since 2013 and must now also shoulder heavy investments in new mobile networks. The arrival of French rival Iliad SA into Italy has also plunged the market back into a price war, reducing revenue for incumbents. Telecom Italia shares have declined 27 percent this year. “Gubitosi’s most important challenge will be giving Telecom Italia a strong, clear mission and direction,” said Massimo Magni, an associate professor of management and technology at Milan’s Bocconi University. He compared Telecom Italia to a “a giant, drifting ship” as shareholder tensions escalate.
The stock rose 3.6 percent at 9:29 am in Milan on Monday. The five Telecom Italia directors aligned with Vivendi — including Genish, who remains on the board — voted against the appointment, according to people familiar with the matter. Gubitosi abstained from voting while the other nine directors loyal to Elliott supported him, said the people, who asked not to be identified as the details aren’t public. A representative for Elliott declined to comment.
VIVENDI’S NEXT MOVE
Gubitosi’s tenure at Telecom Italia risks being cut short if Vivendi tries to win back control of the board. The French media conglomerate can request an extraordinary general meeting of shareholders to propose a new slate of directors, given its voting power.
A spokesman for Vivendi said the board will have to call a shareholders meeting in any case to elect new auditors, giving an opportunity for investors “to decide on one of two strategies: dismantling, as Elliott wants, or a medium-term industrial strategy.”
In a statement, Genish vowed to “accelerate” a shareholder meeting. “Any decision to break up the company, including losing control of the fixed network, must go back to the shareholders for a vote,” he said.
Gubitosi, a corporate turnaround specialist among directors installed by Elliott at Telecom Italia in May, is considered influential in Rome political circles. That may give him an edge with the Italian government, which is pushing for a single fixed network as a way to boost investment in fiber.