With just a week a week left until the much anticipated showdown between vulture-fund Elliott and wannabee media-powerhouse Vivendi at the TIM Shareholders meeting, the latter has unleashed a plea to the media.
The note from Vivendi seems a little bit defensive, but points out all the positive steps forward TIM has taken since Vivendi assumed control in the boardroom. And to be fair, it has actually done a good job. Since June 2017, share price has outperformed peers, Q4 saw the team report record results and the new strategic plan does look promising. But of course Elliott is not happy, and TIM is caught in the middle of two investors scrapping for control.
The TIM/Vivendi strategy is one which has been in the works for some time. Control assets and look to build a convergence business model, readying the organization for the connected economy. It has faced hurdles with the Italian government, but separating the fixed business into a separate, but still wholly-owned, legal entity seemed to appease the government. And then came Elliott.
The activist investor has done what it does best very effectively. It has shouted, screamed and banged its drum so loud people are starting to listen. In a typical example of ‘pump and dump’ investor strategy, Elliott is looking for short-term gains. Reintroduce a healthy dividend, sell off smaller assets and spin-off NetCo, the newly formed fixed line business, to capture billions in capital. This would possibly raise the share price in the short-term, but it would not leave TIM in a healthy position.
The advantage of TIM right now is scale. It has healthy(ish) fixed and mobile businesses, with the ambitions of creating a content unit in the future. The Elliott strategy of stripping assets for cash would leave TIM as a hollow monster. It would not have the assets or scale to launch new products and services, or entice customers with attractive convergence offers. It would also leave the business in a precarious position when it comes to future funding and investment. Scale and assets are attractive when talking to banks, a streamlined business is not.
TIM has long been one of the poorest performing former-monopolies on the European continent, but the Digi-TIM strategy being led by CEO Amos Genish is one which show promise for the future. Economic indicators are all heading in the right direction, but these are reliant on a strategy which can support the business for the next 10-15 years. Elliott is looking short-term to fuel its own financial ambitions, which you cannot blame it for really, but it is not the best strategy for TIM.
Aside from the strategy, the battle for control of the Board Room is another area which should greatly concern investors.
“If Vivendi is ousted as the controlling shareholder, what could await is not a sunlit upland of good governance but an alternative group of less easily identifiable interest groups and the exit of the highly regarded CEO, Amos Genish,” said Nick Delfas, Partner at equities broker Redburn.
When it comes to Italian business and law, it helps to have a dominant voice in the board room. As it stands, there is an established board which supports the strategy. Elliott has proposed the removal of six board members, an idea which is starting to gain some support, replacing them with six of its own nominations. What this would create is a dysfunctional board, with egos aiming to shout louder than the one in the next seat.
Another genuine risk is the loss of CEO Amos Genish, who has developed somewhat of a fan following over the last six months. He is a Vivendi man, which makes the Elliott support for him a bit unusual, but ultimately he is the third CEO in a matter of 18 months for TIM. A dysfunction board room could lead to the loss of Genish, and the introduction of a fourth CEO. This would not create the image of stability and promise, potentially adding further worry to already nervous investors.
To replace the six Vivendi board members, Elliott has proposed its own slate, which once again poses problems. These are Elliott men and perfectly respectable businessmen, but they are from a previous generation. These are men who led businesses to success in the analogue age; are these the leaders who are going to take TIM to the promised land in the digital era? We seriously doubt it.
This drama is all about power and control. Both Vivendi and Elliott want it for different reasons. Vivendi wants to create a pan-European media business, which can dominate the continent for decades. Elliott wants to cash in on the dividend and increase share price, before offloading and profiting. The next couple of weeks could be incredibly defining for the TIM business and whether it is a major player in a decades time or if becomes a footnote underneath a dominant international player.