Telecom Italia Board Proposes Share Conversion -- 2nd Update
November 05 2015 - 6:07PM
Dow Jones News
By Manuela Mesco
MILAN--Telecom Italia launched a proposal for a plan that would
dilute its current shareholders, a move that appears aimed at
defending itself after two French billionaires built large stakes
in the Italian telecoms giant.
Telecom Italia, Italy's former monopoly, said Thursday its board
has proposed a share conversion that, if approved, would
significantly reduce the stake held by France's Vivendi SA. After
the conversion, Vivendi--now the largest shareholder in the Italian
telecom operator--will see its stake fall to slightly more than 13%
from 20% now. However, it would still be the single largest
shareholder. The operation could also dilute a stake built up
recently by Xavier Niel, founder of French telecom upstart Iliad.
The share conversion requires the approval of shareholders.
The surprise move is the latest in a series of changes sweeping
Telecom Italia, which has had a large turnover in shareholder
structure in recent years and has struggled to mount a strategy to
pull the heavily indebted company out of a long decline. Telecom
Italia has launched a multi-billion-euro investment plan to combat
the drop in its once-dominant position in the Italian telecom
market.
In the first nine months of the year, the company invested
EUR3.2 billion, part of which went to the development of Italy's
mobile and fixed-line network. Yet the company, which saw a revenue
increase in its Italian mobile division in the third quarter,
expects to see a falling trend in revenue from its fixed-line
services for the rest of the year.
Last week Mr. Niel took the company and market by surprise in
building up a large stake in Telecom Italia. He bought options
that, if exercised, could give him as much as 15% in the company.
In such a case, Mr. Niel could become the second largest
shareholder in the company after Vincent Bollore, who built a 20%
stake through Vivendi SA in recent months.
Thursday evening, the company announced a proposal by the board
to convert Telecom Italia's savings shares -- which have no voting
rights and command a lower price -- into ordinary stock, which have
voting rights. Savings shares' holders who accept the conversion
will receive a cash payment of 95 euro cents ($1.03) for each
savings share they hold. Shares not voluntarily converted will be
subject to a mandatory conversion with less favorable
conditions.
Given that savings shares make up about 30% of the company's
total capital, such a deal would lead to a dilution of about 30% of
all shareholders. In Mr. Niel's case, since he doesn't yet have a
direct stake in the group, the dilution would mean that his options
to buy shares would convert into a lower stake than previously
expected.
According to Agathe Martin, analyst at Exane BNP Paribas, the
plan would allow Telecom Italia to save an annual EUR166 million of
cash in dividends and potentially raise up to EUR570 million from
the voluntary conversion. "By supporting this proposal,
Vivendi...will have the opportunity to prove its long-term support
in Telecom Italia's investment plans," she added.
A spokesman for Vivendi and Mr. Niel declined to comment.
Vivendi wasn't consulted before the proposal went before the board,
according to the person close to the operation.
If approved in the next shareholders' meeting, called for Dec.
15, the conversion is expected to become effective before the
distribution of the 2015 dividends, the company said. However,
since Vivendi has a 20% stake with voting rights, the French
company could try to gather support to defeat the proposal.
Telecom Italia will receive more than EUR500 million of cash
flow coming from the conversion, said the person. The Italian firm
said that the aim is to increase the free float and simplify its
capital structure.
The company said late Thursday its net profit for the first nine
months of the year fell 63%, to EUR362 million, due to nonrecurring
charges and the impact of a bond buyback transactions. It added
that, without the charges, net profit would have been more than
EUR1 billion compared with EUR985 million for the first nine months
of 2014.
Revenue was EUR14.9 billion, down 6.9% from the same period last
year, while operating profit was EUR2.8 billion, 17.5% lower
compared with the first nine months of 2014.
Nick Kostov in Paris contributed to this article.
Write to Manuela Mesco at manuela.mesco@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 05, 2015 17:52 ET (22:52 GMT)
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