Telecom Italia SpA Chief Operating Officer Marco Patuano will take over responsibilities left behind by Chief Executive Officer Franco Bernabe, who stepped down after clashing with shareholders over strategic directions at Italy’s biggest phone company.
The 65-year-old Bernabe, also chairman of the board, resigned yesterday at a directors meeting in Milan. Patuano, 49, was given executive powers temporarily, while Deputy Chairman Aldo Minucci will run the board until a chairman is identified, the company said in a statement, describing Patuano’s title as managing director and chief executive officer. No reason was given for Bernabe’s departure.
Patuano’s priorities will include agreeing with biggest shareholder Telefonica SA -- which with its partners owns a 22.4 percent stake in the Milan-based carrier -- over strategy in Brazil and how to cut debt to avert a downgrade by rating companies to junk status. Bernabe presided over a more than 70 percent slump in Telecom Italia shares that wiped out some 30 billion euros ($41 billion) in market value.
“Telecom Italia has strong potentials,” Director Gaetano Micciche said yesterday as he left the board meeting that lasted almost five hours. “I am confident that the management is able to develop it.”
Patuano will present a new business plan to the board on Nov. 7, Giorgio Serao, national coordinator for the telecommunications union Fistel-Cisl, said in a phone interview after a meeting with the new CEO in Rome. The company will review the Latin American assets as part of the industrial plan, Serao said.
The shares slipped 0.8 percent to close at 63.9 cents in Milan, paring their gains to 10 percent since Bloomberg News reported Sept. 27 that Bernabe was planning to step down.
The stock is down 6.4 percent this year and is headed for its ninth consecutive annual decline. Its market value of 11.7 billion euros compared with 28.8 billion euros in adjusted debt reported as of June 30.
Moody’s Investors Service said in August it may strip Telecom Italia of its Baa3 rating, the lowest investment grade, unless the carrier works on strengthening its balance sheet. Fitch Ratings, which ranks the debt an equivalent BBB-, said in a statement today Bernabe’s departure reduces the number of options for Telecom Italia because it also removes the likelihood of a large capital increase.
Bernabe had considered proposing a stock sale of as much as 6 billion euros, with a first tranche of at least 3 billion euros, people familiar with the matter have said.
Telefonica, which tightened its grip over Telecom Italia last week with a $1.2 billion cash-and-stock transaction to gradually buy out its partners in holding company Telco SpA, is against the plan. The Madrid-based carrier prefers a sale of Telecom Italia’s Latin American assets to reduce debt, people familiar with the matter have said. Other Telco investors are Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA.
Bernabe told a parliamentary hearing last week that disposing of businesses in Latin America would hurt Telecom Italia’s international profile. Tim Participacoes SA is Brazil’s second-largest wireless carrier with a market value of almost $12 billion.
Bernabe will receive 3.7 million euros in severance pay and an additional 2.9 million euros as part of a 12-month non-competition agreement.
Patuano, who studied at Bocconi University, joined Telecom Italia in 1990. When the carrier started its mobile-phone unit, TIM, and spun it off, he served as its chief financial officer. He was named CFO of units TIM Brasil and Telecom Italia America Latina SA in 2003. In 2006 he took over responsibilities for the fixed-line business at Telecom Argentina SA before being promoted to chief operating officer for the unit.
In 2008, Bernabe recalled him back to Italy as CFO.
“Patuano has the right materials to lead a Copernican revolution,” said Oreste Pollicino, a professor at Bocconi University. “Telecom Italia has to finally play that role of an innovation leader and for too long, that has been left aside.”
Other projects Patuano will take on to raise cash and increase efficiency include a sale Telecom Italia’s wireless towers, creating separate companies for its domestic consumer and business services, and a spinoff of the carrier’s fixed-line grid that was stalled partly by the political turmoil in Italy that is threatening Prime Minister Enrico Letta’s five-month-old administration.
A spinoff of the fixed-line network or sale of Tim would take at least six to 12 months and is unlikely to ease pressure on Telecom Italia’s debt ratings, Fitch said today.
Minucci, 67, has been on Telecom Italia’s board since 2007. He served as chairman of Telco from 2007 until last year.
Patuano doesn’t have a lot of time, said Roger Appleyard, head of global credit research at RBC Capital Markets in London, who recommends selling Telecom Italia bonds.
“In the absence of an announcement that states Tim will be sold or a rights issue will be undertaken, Moody’s is almost certain to downgrade Telecom Italia to junk,” he said. “I don’t see why they would bother waiting for third-quarter results. Unless management tells Moody’s it will do inorganic A or B, then we move to Ba1.”