Telecom Italia SpA (TIT) Chief Executive Officer Marco Patuano will today throw his support behind a proposal to reduce the influence of the carrier’s largest investor group as minority shareholders seek more say over its board, according to two people with knowledge of the matter.
Directors gathering in Milan will start reviewing a motion by investors led by Marco Fossati — the company’s third-largest shareholder — to strip Telco SpA’s power to name four-fifths of board members, said the people, who asked not to be identified because the discussion is confidential.
Fossati, whose Findim Group SA owns about 5 percent of Telecom Italia, narrowly lost a bid at a Dec. 20 vote to revoke the current board led by Patuano, 49, a sign that some shareholders are getting impatient with corporate governance at Italy’s biggest carrier. The CEO, who replaced Franco Bernabe in October, faces another challenge in April when his mandate comes up for renewal along with the rest of the 11-member board.
“Patuano realizes his job is at stake and he understands the message from last month’s shareholders meeting that Telecom Italia needs to change its corporate governance and become a public company,” said Andrea Rangone, a professor of business strategy at Milan’s Politecnico University.
The “four-fifths” board rule has been in place since 1997, when Telecom Italia was privatized by the government.
Most recently, it has allowed Telco, whose main investors are Telefonica SA (TEF), Mediobanca SpA, Intesa Sanpaolo SpA and Assicurazioni Generali SpA, to control the board even with a 22.4 percent holding. Madrid-based Telefonica agreed in September to gradually boost its holding in Telco, giving the financial investors a chance to exit in the future.
Telecom Italia rose as much as 1.7 percent to 84.7 euro cents, the highest level in 16 months, and traded up 0.8 percent at 11:40 a.m. in Milan. The shares have risen 18 percent this month on speculation over a possible sale of the company’s Brazilian business.
Fossati wants broader shareholder representation on the board, and a system that allows investors to decide directors proportional to their stakes. In his attempt to overthrow Telecom Italia’s board last month, about 50.3 percent of shareholders present voted against the plan. Some 42.3 percent backed the motion and 7.4 percent abstained.
BlackRock Inc. (BLK), the world’s largest money manager, has recently increased its stake in Telecom Italia to become its second-largest owner. Norges Bank has a 2 percent holding, a regulatory filing shows.The carrier’s board will start its review of the governance issue today and a final decision on changing the company’s bylaws must be approved by shareholders.
Representatives for Telefonica, Generali, Intesa and Mediobanca declined to comment on today’s meeting. A spokesman for Telecom Italia wasn’t available for comment.
Fossati has cited conflicts of interest between Telefonica and Telecom Italia as a reason for his bid to dismiss the board and said last month the company needs an “alternative project” that would protect minority investors.
In December Telefonica CEO Cesar Alierta and a former executive Julio Linares stepped down from Telecom Italia’s board to avoid the perceived conflicts of interest in Brazil, where the two companies compete. The country’s antitrust authorities have fined Telefonica and ordered it to reduce its Brazilian holdings or convince Telecom Italia to sell its local unit, Tim Participacoes SA. (TIMP3)
The corporate governance issue is crucial now as Patuano faces key decisions, such as in Brazil, on how to reduce a $38 billion debt pile and revive its Italian phone business pummeled by Europe’s debt crisis.
Telecom Italia is marketing its first senior bonds since being downgraded to junk status. The seven-year notes are being marketed to yield 300 to 310 basis points more than the benchmark mid-swap rate, according to a person familiar with the matter. That compares with a spread of 330 basis points when the company priced seven-year notes in September, before it lost its investment-grade ranking at Moody’s Investors Service and Standard & Poor’s.
Some directors, backed by Patuano, are proposing a motion at today’s meeting that any potential offer for the Brazil unit would be scrutinized by a special committee of independent members, two people familiar with the matter said Jan. 3.
“The fight over board composition is really a battle over what future Telecom Italia can have in the next 18 months, especially its role in Brazil,” Emeka Obiodu, an analyst at Ovum Ltd. in London, said in a phone interview. “Whichever party comes out of this stronger will still face the daunting task of sorting out Telecom Italia’s finances.”