U.S. hedge fund wins control of Telecom Italia board

ROZZANO, Italy – French media group Vivendi lost de facto control of Telecom Italia on Friday when a U.S. activist hedge fund won a majority of seats on the former state monopoly’s board in a dramatic shareholders’ showdown that also raised questions about the government’s role.

Elliott won the support of 49.8 percent of the vote to Vivendi’s 47.2 percent to control 10 seats to Vivendi’s five. The move ends a battle that has intensified in recent weeks amid concerns about the management of an asset considered strategic by the Italian government.

Elliott’s victory paves the way for a shift in strategy for the former Italian monopoly, including the likely separation of the network infrastructure from TIM services. The strategy has the backing of the Italian government, which had activated the “golden power” to protect strategically important assets. The government bought a 5 percent stake in April.

Elliott revealed its stake, currently at around 9 percent, earlier this year, saying it wanted to shake up the board as part of a strategy to increase shareholder value, which has lost a third of its value since Vivendi became the controlling shareholder in 2015.

Telecom Italia’s shares rose 1 percent percent to 1.15 euros after the vote. Shareholders assembled cheered when the vote was announced, only to be admonished by vice chairman Franco Bernabe, who said “this is not a football stadium.”

The Italian government last year exercised its right to protect Telecom Italia amid concerns over the French company’s control of Telecom Italia’s Sparkle undersea cable division and Telsy, which provides encrypted communications technology to the Italian military and government. The government decree requires a board member who is Italian and holds a security clearance to handle matters significant to national security.

Elliot’s aim to separate Telecom Italia from the network infrastructure could allow an independent company controlled only by Italian investors. Vivendi, which controls just under the 25 percent threshold that would trigger a takeover, had been reluctant to spin off the network, which is the money-generator at the heavily indebted company.

Vivendi took a controlling stake of Telecom Italia with the aim of taking over also Silvio Berlusconi’s Mediaset to create a big media holding. That Mediaset deal has fallen in dispute, and analyst Carlo Carnevale Maffe said Vivendi’s major error was not courting officials with their strategy.

“They penetrated at nighttime, and they occupied. This is perfectly legal and perfectly justified,” said Maffe, a management professor at Milan’s Bocconi University. “But if you want to buy a major telco and the biggest private media company, you need to knock on the door and at least ask permission.”