Telefonica’s Alierta Gains Clout as Rival Bernabe Resigns
Franco Bernabe’s exit from Telecom Italia SpA (TIT) ends a battle between two of Europe’s most prominent telecommunications executives, leaving Telefonica SA (TEF)’s Cesar Alierta a victor in his quest for control at the Italian carrier.
The departure follows a dispute over strategy with Telecom Italia shareholders including Alierta’s Telefonica, Spain’s biggest phone carrier, which first bought a stake in its Italian counterpart six years ago and tightened its grip last week.
Alierta, 68, now has more power over Telecom Italia assets from Brazil to Italy as the Telefonica CEO plans for more deals. He is weighing splitting up and selling Telecom Italia’s Brazilian assets, people familiar with the matter have said, while continuing to expand in Europe to fend off American rivals AT&T Inc. (T) and America Movil SAB. (AMXL)
“After defeating Bernabe, Alierta is now the last survivor of the industry’s old guard,” said Luis Benguerel, an equity trader at Interbrokers in Barcelona. “He still has a tough job to do as the value of telecom stocks has been tremendously destroyed.”
The exit of Bernabe, 65, who as executive chairman led Telecom Italia the past six years, leaves a power vacuum at the Milan-based carrier. Chief Operating Officer Marco Patuano will assume CEO responsibilities and was given more powers temporarily as the board seeks a new chairman. Telefonica, the biggest shareholder, will have influence over the choice of leadership.
After presiding over years of stock declines and driving Telecom Italia’s rating to the brink of junk by failing to cut debt fast enough, Bernabe lost the confidence of Telco SpA, the group of investors including Telefonica that owns 22.4 percent of the phone company, said people with knowledge of the matter. Telecom Italia didn’t give a reason for Bernabe’s resignation.
Bernabe opposed selling Telecom Italia’s Tim Participacoes SA (TIMP3) unit, Brazil’s second-largest wireless carrier, a solution people familiar with the matter have said is favored by Telefonica, whose Vivo unit is the country’s largest mobile carrier.
It will now be easier for Alierta to force a sale of Tim to local rivals Vivo, America Movil and Oi SA, people familiar with the matter have said. Such a move, which would face regulatory scrutiny, could help reduce debt at Telecom Italia. It could also strengthen Telefonica, with a 29 percent market share in the world’s fifth-biggest wireless market, which is helping the Madrid-based company offset stagnating sales in Europe.
A Telefonica spokesman declined to comment on acquisition plans and Bernabe’s departure.
In Europe, increasing control over Telecom Italia gives Telefonica more strategic options amid a wave of takeovers. Alierta wants to focus on Telefonica’s position in Spain, Italy, Germany and the U.K., the people said, asking not to be identified because the discussions are private.
A former banker and chairman of Spanish tobacco company Tabacalera SA, Alierta has run Telefonica since 2000. His acquisition spree last decade built Telefonica into a major competitor in markets including the U.K. and Germany in addition to its native Spain.
Still, the purchases also pushed the company’s net debt to about 58 billion euros ($79 billion), hurting credit ratings. That prompted the executive to turn his attention to reducing borrowings and selling some assets.
Most recently, he has cemented Telefonica’s position in Germany, where he is buying Royal KPN NV’s local business for 8.55 billion euros.
Telefonica added 0.1 percent to 11.81 euros at 10:05 a.m. in Madrid, valuing the company at 53.7 billion euros. The stock had risen 12 percent in the past year through yesterday. Telecom Italia was little changed at 64 cents. It has lost 18 percent in a year, giving it a market capitalization of 11.8 billion euros.
The carriers’ conflicts of interest in Argentina and Brazil have forced Telefonica representatives attending Telecom Italia’s board meetings to leave the room during discussions over those markets, people familiar with the matter said.
In the past weeks, tensions between Bernabe and Telecom Italia’s largest shareholders heated up over disagreements about measures to bolster the carrier’s finances. Bernabe, who is best known in Italy for turning around oil company Eni SpA, sought a capital increase to trim Telecom Italia’s debt pile, while Telefonica was supportive of asset sales.
On Sept. 24, Telefonica agreed to boost its stake in Telecom Italia in a $1.2 billion cash-and-stock transaction. The Spanish carrier will increase its holding in Telco to 66 percent initially, and partners Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA will gradually reduce their stakes further.
While this time around Alierta is seeking deals without ballooning the company’s debt -- Telefonica targets a reduction to 47 billion euros by the end of this year -- an expansion still carries risks. Some investors are concerned that an increasing size makes Telefonica less nimble, said Daniel Lacalle, a senior portfolio manager at Ecofin Ltd. in London.
“Telefonica’s potential expansion in Europe will make it an even slower and more bureaucratic company,” Lacalle said. “It’s not a matter of size but of being more competitive and dynamic in a fast-changing industry. As phone companies accumulate assets, they become fatter, but not stronger.”
Still, Alierta isn’t alone in believing bigger is better. Telecommunications mergers and acquisitions have totaled about $253 billion this year, according to data compiled by Bloomberg.
This week Portugal Telecom SGPS SA agreed to merge with Oi to create a carrier with almost $17 billion in sales and 100 million customers in Portuguese speaking countries. AT&T has said it is looking for assets to expand in Europe.
“Alierta is now in the driver’s seat, but managing and turning around Telecom Italia will be a very challenging task,” said Francisco Salvador, a strategist at FGA/MG Valores in Madrid.