New Telecom Italia CEO Gubitosi Deepens Elliott’s Influence

Telecom Italia SpA’s decision to name Luigi Gubitosi as its new chief executive officer marks another victory for Elliott Management Corp. in its push for a radical overhaul of the embattled phone company.

The board, stacked with directors representing billionaire Paul Singer’s fund, chose the former Merrill Lynch banker at a meeting on Sunday. Gubitosi succeeds Amos Genish, who was ousted Nov. 13 for resisting the activist’s call for a spinoff of the landline network. Bloomberg reported on Saturday that Gubitosi was set to become CEO.

The appointment entrenches Elliott’s influence and represents a blow to Telecom Italia’s largest shareholder, Vivendi SA, which is against the carrier ceding control of the grid and was opposed to Genish’s removal. Gubitosi, 57, is the fifth CEO of the former phone monopoly in five years and has the momentous task of restoring stability while a fight between the company’s two biggest investors threatens further upheaval.

“Gubitosi’s most important challenge will be giving Telecom Italia a strong, clear mission and direction,” Massimo Magni, an associate professor of management and technology at Milan’s Bocconi University, said before Gubitosi’s appointment was confirmed. Shareholder tensions risk making Telecom Italia “like a giant, drifting ship,” he said.

The five Telecom Italia directors aligned with Vivendi — including Genish, who remains on the board — voted against the appointment, according to people familiar with the matter. Gubitosi abstained from voting while the other nine directors loyal to Elliott supported him, said the people, who asked not to be identified as the details aren’t public.

A representative for Elliott declined to comment.

Vivendi’s Next Move

Gubitosi’s tenure at Telecom Italia risks being cut short if Vivendi tries to win back control of the board. The French media conglomerate can request an extraordinary general meeting of shareholders to propose a new slate of directors, given its voting power.

In a statement, Genish vowed to “accelerate” a shareholder meeting. “Any decision to break up the company, including losing control of the fixed network, must go back to the shareholders for a vote,” he said.

A spokesman for Vivendi said the board will have to call a shareholders meeting in any case to elect new auditors, giving an opportunity for investors “to decide on one of two strategies: dismantling, as Elliott wants, or a medium-term industrial strategy.”

Turnaround Specialist

Gubitosi, a corporate turnaround specialist among directors installed by Elliott at Telecom Italia in May, is considered influential in Rome political circles. That may give him an edge with the Italian government, which is pushing for a single fixed network as a way to boost investment in fiber. He led Telecom Italia’s mobile rival Wind Telecomunicazioni SpA and state-owned television network Radiotelevisione Italiana SpA before the government made him special administrator of bankrupt airline Alitalia last year.

“Telecom Italia has a great history,” Gubitosi said in Rome after the board meeting, according to a company spokesman. Telecom Italia can win market share, increase cash flow and look quickly at creating a single landline network, Gubitosi said.

The new CEO takes the reins at a company weighed down by net debt of 25 billion euros ($29 billion) and heavy pension liabilities. The carrier hasn’t paid a dividend on its ordinary shares since 2013 and must now also shoulder big investments in new mobile networks. The arrival of French rival Iliad SA into Italy has also plunged the market back into a price war, reducing revenue for incumbents. Telecom Italia shares have declined 27 percent this year.

The vulnerability of Italy’s biggest phone company left an opening for Elliott. The fund emerged in March calling for asset sales and improved corporate governance in a direct criticism of the stewardship of French media conglomerate Vivendi, which owns a 24 percent stake.

Elliott, with 8.9 percent of Telecom Italia’s shares, won the backing of other investors to overthrow Vivendi’s hold on the board two months later and appointed 10 directors, with Vivendi naming the other five. Italian state lender Cassa Depositi e Prestiti SpA, with a 4.9 percent stake, was crucial in helping Singer’s fund win by voting for its slate of directors. The removal of Genish followed months of disagreement between Elliott and the Israeli former army captain, who Vivendi made CEO in September 2017.

Takeover Target

Telecom Italia’s share performance since Elliott took over the board — a decline of 38 percent — has left the carrier with a market value of just 10.7 billion euros, making it a potential takeover target, according to Francesco Vatalaro, a telecom professor at the University of Rome Tor Vergata.

“Telecom Italia’s market capitalization is pretty tiny for a company like that,” Vatalaro said by phone. “If I were Gubitosi, the first thing I’d do would be implement strategies to protect the company against a possible hostile takeover.”

— With assistance by Scott Deveau, and Kim McLaughlin – Bloomberg