Telecom Italia 2013 EGM results: everybody wins, nobody wins

The most awaited Italian meeting of 2013 was finally held on December 20th. The voting quorum reached the highest level ever at Telecom Italia’s meetings: 54.26% of the share capital was represented. The major shareholder Telco voted 22.4% of the share capital, while the dissident shareholder, Mr. Fossati, who called the meeting to revoke the entire Telecom Italia’s Board, voted 5% through Findim Group. Approximately 26.9% of the voting capital was represented by (more or less) independent shareholders.

 

The situation on the meeting date

 

Many events occurred during the last few days before the meeting: the Telefonica’s representatives (the CEO, Mr. Alierta, and the COO, Mr. Linares) resigned from their Board membership at Telecom Italia; Mr. Linares also renounced the nomination for the eventual re-election in case the Board removal would have been approved; as expected (by Frontis Governance), Telco proposed to keep unchanged the number of Directors at 15, submitting further 6 nominees to the meeting.

Contrary to almost all international observers’ reported comments (with the only exception of Frontis Governance and ECGS), the eventual removal would have resulted in the following new Board composition: 7 members appointed by the group of institutional fund managers (and supported by the dissident shareholder Mr. Fossati) and 8 members appointed by the major shareholder Telco, including the current CEO Mr. Patuano.

Aside from the inevitable confusion on which direction would have taken the Company, being the CEO removed, the great result would have been a strong increase in the independence rate. Certainly a very good result, but that would have not solved the conflicts of interest of Telefonica (as the Brazilian Antitrust Regulator, CADE, contested Telefonica’s financial interests into Telecom Italia, that are still alive), nor the big problems related to the huge debt and the poor domestic performances of Telecom Italia. At the end of the day, so much promise for so little delivery!

The final result

In this extent we point out the controversial move of Blackrock Inc. which decided to abstain from voting its shares (as reported by The Wall Street Journal and the New York Post). Besides a week prior to the EGM, the world largest investment firm raised its stake in Telecom Italia up to 10.1% with corresponding voting rights equal to 7.8% due to a portion of its holding under convertible bonds. As recently as the week before the EGM, Blackrock, usually following proxy advisors guidance’s and especially ISS’s, was expected to vote all its shares supporting the resolution of the minority shareholders Findim. The intention seemed to change after the board of the Rome-based Telco voted to sell Blackrock 15 % of a 1.8 billion convertible bond the same week… Following the EGM, rumours in the Italian media questioning whether Blackrock had some sort of deal with Telefonica over the vote have emerged, but demented straight away by Blackrock's officials.

Once having rejected the removal, the meeting was called to appoint two new Directors, to integrate the Board. One of the candidates, Mr. Provasoli, who was co-opted by the Board on October 3rd, also renounced to the nomination. As the nominees to the two open positions have been disclosed only the day before the meeting date (on December 19th), none of the shareholders voting by proxy were able to vote for, so no new members were finally appointed. The final result of all of this mess is: the current Board is still on charge, but including only 11 members out of 15, of which 5 independent Directors (according to the Company’s appraisal).

Everybody wins, nobody wins

 

Even if he lost the battle, Mr. Fossati reached at least two great results: Telefonica’s conflicts of interest are no more represented into the Board and finally the Company recognized the huge distortions caused by the Board election’s mechanism, that provides for 80% of the members to be elected by the slate of nominees obtaining the majority of votes, regardless the actual percentage of votes gathered. During the meeting, the CEO Mr. Patuano finally recognized that eventual amendments to the Company’s bylaws must be discussed as soon as possible.

As already reported in our comment published on December 12th, all Mr. Fossati’s concerns were, and still are, more than sharable. Probably, a different strategy might have allowed him to gain the control of Telecom Italia’s Board, with only 5% of the share capital. It is not clear whether Mr Fossati really wanted to gain the control, or just to make some changes happen. In the first case he has definitely lost, but in the latter one he reached a great victory. On the other side, the major shareholder Telco is reported as the winner, as the Board was not removed, but it is clear that it does not control the Company anymore. From now on, minority shareholders are finally aware of their power, and all resolutions will be accurately scrutinized. The mandate of all current Board members will end in 2014, when the AGM will be called for renewal. Probably the real battle has just been postponed.

 

Sergio Carbonara, December 23rd, 2013