Telecom Italia’s Bernabe Quits After Losing Investor Support

Telecom Italia SpA Chief Executive Officer Franco Bernabe resigned after clashing with top shareholders over his attempt to boost capital, ending a near six-year tenure leading Italy’s biggest phone company.

Bernabe, 65, stepped down during a board meeting in Milan today, Telecom Italia said in a statement. Chief Operating Officer Marco Patuano was given executive powers temporarily, while Deputy Chairman Aldo Minucci will run the board until a chairman has been designated, according to a separate statement.

Bernabe presided over a more than 70 percent slump in Telecom Italia shares that wiped out about 30 billion euros ($41 billion) in market value. Disagreements with biggest shareholder Telefonica SA -- which with its partners holds a 22.4 percent stake -- over a potential capital increase and strategy in Brazil stripped the CEO of support from the group that also names most of Milan-based Telecom Italia’s board of directors.

“He took over a company with a big debt burden and a declining domestic business and is now leaving a company faced by those same problems,” Andres Bolumburu, a Madrid-based analyst at Banco de Sabadell, said in an interview on Sept. 29. “In all these years, he hasn’t found the right strategy to turn around the business.”

Bernabe will receive 3.7 million euros in severance pay and get an additional 2.9 million euros as part of a 12-month non-compete agreement.

Political Turmoil

A leadership change at Italy’s former state-owned phone company -- whose assets the government considers strategic -- may add to the country’s political turmoil. Prime Minister Enrico Letta won a confidence vote yesterday after Silvio Berlusconi, a partner in the ruling coalition, backtracked on a pledge to bring down the five-month-old government.

Telecom Italia rose 1.7 percent to 64.4 cents in Milan. The stock has lost 5.7 percent this year and is headed for its ninth consecutive annual decline. It has a market value of 11.8 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 cut Telecom Italia’s rating to junk, putting pressure on Bernabe to come up with measures to strengthen the carrier’s balance sheet.

Bernabe had been considering proposing to Telecom Italia’s board a capital increase 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 Deal

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 a capital increase and prefers a sale of Latin American assets to reduce debt, people familiar with the matter have said. Telco’s other investors are Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA.

Bernabe told the parliamentary hearing last week that disposing of businesses in Latin America would hurt Telecom Italia’s international profile.

He favored growing in Latin America after putting Telecom Italia’s Argentine business in order in 2010. His departure removes an obstacle to a sale of the Brazilian unit Tim Participacoes SA, the country’s second-largest wireless carrier with a market value of $11.1 billion, a solution people familiar with the matter have said is favored by Telefonica.

Other proposals to raise cash and increase efficiency include a sale Telecom Italia’s mobile-phone towers, creating separate companies for its domestic consumer and business services, and a spinoff of the carrier’s fixed-line grid, people familiar with the matter have said.

Latin-America Legacy

Bernabe’s legacy will include bolstering Telecom Italia’s Latin American units to offset a slump in business in its home market. In 2010, Telecom Italia boosted to majority its holding in the company that controlled Telecom Argentina with the purchase of an 8 percent stake from the Werthein family, resolving legal disputes with its local partner. In Brazil, Tim is winning market share against rivals including Telefonica and Carlos Slim’s America Movil SAB.

Best known in Italy for turning around oil company Eni SpA, overseeing its privatization and making it one of the world’s largest energy companies by market value, Bernabe had a previous stint at Telecom Italia.

He joined the company in November 1998 after about six years at Eni only to be ousted following Telecom Italia’s takeover by Roberto Colaninno’s Olivetti SpA in 1999. Bernabe returned to Telecom Italia in 2007 -- after he founded FB Group and merged it with Rothschild -- with a mandate to shrink the company’s ballooning debt.