TIM’s shareholders feud after network spin-off plan stymied by regulator

The future for Italian incumbent Telecom Italia (TIM) remains uncertain, at a crucial time when the new mobile entrant, Iliad, has succeeded in capturing 2.2% of the market in just one quarter of operation.

The largest shareholder in TIM, Vivendi of France, had proposed spinning off the telco’s network operations into a separate subsidiary, but this was rejected by regulator AGCOM.

This provoked an angry reaction from TIM’s activist investor and second biggest shareholder, Elliott. “The decisions taken by the previous Vivendi-dominated board…have resulted in a year of value destruction and time wasted at the expense of TIM, its shareholders and the entire country,” an Elliott spokesperson told TelecomTV.

Early last year, Vivendi executive and then-TIM CEO, Amos Genish, suggested forming the separate Netco, to give TIM “the investment capabilities to maintain the highest quality network”. Elliott did not object in principle, but wanted TIM to sell a stake in Netco – which was expected to be valued at €15bn in total – to help reduce debt. However, a proposal was adopted by the Vivendi-controlled board, which did not include this sale. Elliott promptly seized control of the board and that new board voted to oust Genish in November, replacing him with Luigi Gubitosi. Then AGCOM killed the spin-off plan completely, saying that, if TIM owned 100% of the proposed Netco, it

“maintains the incentive and the ability to favour its companies, active both in the wholesale markets and in the retail markets for access to the fixed network”.

AGCOM has launched a 45-day public consultation ahead of a final decision and Elliott wants the current board to “take the necessary steps towards the creation and separation of a single network without further delay, in order to create value for TIM, its shareholders and all its stakeholders”.

This all happened just days after TIM issued a profit warning for its full 2018 year, and warned of continuing pressures on its Italian business during 2019. It needs to reduce its net debt mountain, which was €25.2bn at the end of September 2018, but its efforts have been hit by growing competition, with the arrival of Iliad in mobile, and a strong showing from Open Fiber in the wholesale fixed line space. It is also having to invest heavily in upgrading its own fiber and radio networks.

In November, TIM abandoned its previous debt reduction target of 2.7 times EBITDA, and this month, it warned that full-year organic EBITDA at the domestic business would fall compared to 2017.

Since losing control of the board, Vivendi has described TIM’s management as “disastrous”; and has secured a vote on whether to replace the five Elliott nominees on the board – that vote is due on March 29.