Sergio Carbonara comments to Reuters on Vivendi's move at Telecom Italia

Article prepared by Maria Pia Quaglia and published by Reuters on Nov 19, 2015

A group of Italian and foreign funds said on Thursday Vivendi's proposal for additional members on the board of Telecom Italia raised governance concerns and questions about its intentions for the Italian phone group.

Vivendi has gradually built up a 20.116 percent stake in Telecom Italia to become its largest shareholder. The French media group wants to increase the number of board members to 17 from the current 13 and appoint three of its top executives and a French consultant as its representatives.

In a letter addressed to Telecom Italia's Chairman Giuseppe Recchi, CEO Marco Patuano and its entire board, the funds committee asked that Vivendi's request be urgently examined.

They said the move would not only dilute institutional investors' representation on the board but also give Vivendi the possibility to "exercise greater influence than it is guaranteed by the Telecom Italia stake it holds".

They also raised concerns about the lack of protection against the Vivendi directors' ability to influence the fortunes of a company the French group competes with.

Telecom Italia had no immediate comment and Vivendi declined to comment.

The letter follows an earlier Reuters report, in which a senior industry source said Italian funds were worried that Vivendi might gain too much influence if it manages to secure nearly a quarter of all board seats at an upcoming shareholder meeting in December.

Italian funds hold only 5 percent of the company but select board members to represent all institutional investors. Foreign funds control 60 percent of Telecom Italia.

When the current board was elected in April 2014, the Italian funds' list of nominees got 50.3 percent of total votes.

"Vivendi seems to be acting more like an activist fund", the source said, adding a decision on how to vote in December had yet to be taken.

The shareholder meeting has been called to approve a recent plan to convert the company's savings shares into ordinary stock, which would dilute existing ordinary shareholders.

Vivendi, whose chairman and top investor is influential French businessman Vincent Bollore, refrained at first from asking for board representation and in September Vivendi CEO Arnaud de Puyfontaine said the issue was not on the table.

Since then, however, another French billionaire has emerged as potentially the second biggest investor in Telecom Italia, with Xavier Niel, the founder of French telecoms group Iliad, having disclosed he holds call options relating to a 15.1 percent stake.

Bollore and Niel have denied acting in concert and their intentions remain unclear.

Two sources close to the government said Rome was monitoring the situation but was not surprised by Vivendi's move.

Sergio Carbonara, founder of Italian proxy adviser Frontis Governance, said Vivendi would be over-represented if it won 23 percent of the Italian company's board, with a stake set to fall to below 14 percent once the savings shares are converted.

"The most worrying thing is that Vivendi may have a strong say with a small stake given that its business is to some extent similar," he said, alluding to the increasing convergence of telecoms and media markets.

Bollore, a key shareholder in powerful Italian investment bank Mediobanca, is also seen as close to former Prime Minister Silvio Berlusconi who controls the country's biggest commercial broadcaster Mediaset.

"Vivendi's interests could potentially conflict with those of Telecom Italia," Carbonara said.