Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

When Vincent Bollore arrived at Telecom Italia Spa two years ago, investors in the poorly performing company hoped the billionaire corporate raider would usher in an era of growth and better returns. Instead, he has brought chaos.

The latest drama puts Bollore's Vivendi SA on the verge of firing Flavio Cattaneo, the CEO it handpicked for Telecom Italia only 16 months ago. With Telecom Italia shares nearly 30 percent lower since Vivendi's arrival as its biggest investor, this is more evidence that riding Bollore's coat-tails is no sure thing even for investors who don't mind weak governance or disorder.

Billionaire Bets
Under Vincent Bollore, Vivendi has assembled a bunch of listed minority stakes. Their performance has been mixed.
Source: Bloomberg, company reports
*Telecom Italia: VIV owns 23.9 pct of the voting shares, and 17.2 pct of total shares

The Cattaneo episode is a case in point. In Bollore land, it's futile to ask why an executive suddenly has to go, although several explanations have been offered up in the media including Cattaneo supposedly irritating the Italian government over rural broadband investments. 

The Telecom Italia boss appeared to be doing the job he was hired to do and was liked by investors. Revenue trends have improved in Italy after Cattaneo increased prices, while Ebitda margins improved by 3 percentage points in the past year. Telecom Italia's bloated workforce was trimmed by about 6 percent. 

To be sure, it's much too soon to pronounce the turnaround complete. But on the basis of operational results, there's no obvious reason for him to go. 

Green Shoots
Flavio Cattaneo managed to get Telecom Italia's revenues growing again
Source: Bloomberg Intelligence

His removal does seem pretty self-indulgent, especially since Telecom Italia will face a genuine threat in a few months time when French budget telecoms billionaire Xavier Niel enters its domestic market. The departure may well be expensive too: Cattaneo's severance check could in theory reach a mind-boggling 30 to 50 million euros. 

Worries about public outrage might lead to a saner settlement when Telecom Italia's board meets on Monday, but Cattaneo's remuneration clause was poorly conceived. His contract calls for him to get paid a special award even if he gets fired during the four-year term, as long as the company is on track to beat 2018 financial targets on metrics such as operating profit and cost cuts.

The structure gave too much weight to short-term results and offered excessive protection to Cattaneo. Investors can't say they weren't warned: proxy advisory firms Glass Lewis and ISS advised against ratifying the deal at the annual shareholder vote.

Wrong Direction
Telecom Italia shares initially rose on hopes Vivendi's ownership would benefit investors
Source: Bloomberg

Such a reckless pay package probably only makes sense if Vivendi was hoping to score a few cheap wins and then flip Telecom Italia to another owner. Telecoms executives and bankers have speculated that Vivendi wasn't a long-term owner, and wanted to use Telecom Italia as a chit to be played in broader European telecoms consolidation.

Such chatter often casts Bollore as some sort of grand-master of deal strategy, outmaneuvering others in a chess game only he sees clearly. His Telecom Italia gambit hasn't proved to be a winner.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net