The chaos created by Vincent Bollore when he targets a company can be hard to endure. But Telecom Italia's shareholders have declared allegiance to the French corporate raider, betting they can benefit from his presence. They may be right.
Bollore-chaired Vivendi, owner of 20.5 percent of Telecom Italia, scored a big win on Tuesday by scuppering the phone company's effort to simplify its structure and save money by eliminating an archaic dual-class system. Not only did Vivendi avoid being diluted to about 13 percent of total shares, Bollore's gambit to place four directors on the board of Telecom Italia also succeeded by a slim majority.
Vivendi now sits in the driving seat at Telecom Italia, without having made a tender offer or paying a premium for the privilege.
While that will dismay proxy advisory firms and Telecom Italia's management -- and worry the government in Rome -- Bollore's power-grab is still not quite as bad as what has gone before at the company. Until earlier this year, the carrier was effectively controlled by three Italian financial institutions and Spain's Telefonica, who together owned 22.4 percent of the capital.
During that unhappy period, Telecom Italia was burdened by the need to service the debt sitting at the holding company and often paralyzed by indecision. Worse, Telefonica competed directly with Telecom Italia in Brazil, casting doubt over whose interests it was representing.
Vivendi can't be less palatable than that. Even though the company can be maddeningly opaque about plans for its holdings, Bollore's interests are more naturally aligned with minority shareholders than those of the previous owners.
The Breton billionaire just wants to make money. He's unemotional about selling assets, sacking executives, or eventually flipping Telecom Italia to another buyer. He's honed a playbook after years of raids on firms such as British ad agency Aegis and French industrial pipe-maker Vallourec. While his record at Vivendi is more mixed, he's had enough successes to suggest he could clean up some of the historic mess at the Italian company, which has 28 billion euros ($31 billion) of net debt.
Few expect Bollore's Vivendi to be a long-term investor in Telecom Italia. Instead his game appears to be to generate value and then exit, something that should -- if executed properly -- benefit shareholders.
If he maintains influence over the board, he can push for a sale of the Brazil unit. He could also install a cost-cutter as chief executive. Returns on equity have consistently been worse than peers (see chart below).
Telecom Italia shares have risen 28 percent in the past year, in part because of Bollore's emergence as a big stakeholder, compared with a 6 percent increase for the European telecoms index. Deal speculation will probably support inflated levels of its stock for the foreseeable future, especially with Orange casting its net for European mergers and Xavier Niel, another French billionaire, buying an option on about 15 percent of Telecom Italia shares.
Shareholders who want transparency, certainty, and good corporate governance should probably look elsewhere. Those with an appetite for risk might want to stick around to see how this one shakes out.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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