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MarketScreener Homepage  >  Equities  >  Italian Stock Exchange  >  Enel S.p.A.    ENEL   IT0003128367


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With new CEO, Telecom Italia 'opera' edges towards finale

11/18/2018 | 06:39pm EST
FILE PHOTO: A Telecom Italia phone booth is pictured in downtown Rome

MILAN (Reuters) - Barely a year into the job as the boss of Italy's biggest telecoms company, Amos Genish had just finished celebrating a joint venture with electronics group Samsung at a dinner in South Korea when a WhatsApp message arrived sealing his fate.

The Telecom Italia CEO had been in conflict with some of his fellow board members over strategy at the former state phone monopoly but the company had said there would be no board meeting while he was away.

"Amos, the board has been called for tomorrow morning at 7 to resolve on the revocation of your delegation of power. I'm sorry it happened when you're out," read the message, a copy of which has been viewed by Reuters.

Twelve hours later, the telecoms industry veteran was fired in a board meeting he dialled into from Seoul. He was the third CEO to leave the group in as many years and his successor was chosen on Sunday.

The new CEO, Luigi Gubitosi, is backed by U.S. activist investor Elliott Management, which had pushed for the spin off of the company's fixed line network (NetCo) and the sale of other assets, shifting the focus from the operational turnaround pursued by Genish.

The sacking, which Genish called a Soviet-style putsch, was the latest twist in a corporate drama that one board member described in an email as an "opera".

In theory, it paves the way for Elliott's plan. But conversations with sources both inside and close to the company show that in practice there may be many more twists to come.

The underlying plot pits Elliott against TIM's main shareholder, French media group Vivendi, over how to revive an underperforming business whose shares have dropped 27 percent this year alone.

The outcome will decide both the future of TIM and whether Italy can overcome the digital divide that separates it from more advanced economies in Europe.

Genish, who was appointed by the French investor last year, wants TIM to keep control of the network, deeming it strategic both to the deployment of fifth-generation (5G) mobile services and to the survival of the company's service operations.

Elliott, which took control of the board in May, has an ally in Italy's anti-establishment government elected in June, which has prioritised the creation of a single broadband network to help Italy catch up digitally with European peers.

A new draft amendment to a government fiscal decree, seen by Reuters on Friday, aims to advance the project via incentives to twin TIM's network with small, state-backed rival, Open Fiber.

"All the stars are aligned, this is a massive project and it needs to be pursued, you can’t say you won’t do it because there are risks associated with it," a source familiar with the matter said of Genish.


Genish supports the idea of a single network provided TIM is in control of the merged entity. A former Israeli army captain, he told Reuters he will remain on the board "to fight and defend" shareholders' rights.

On Sunday, Genish said he would seek support to call a shareholder meeting as soon as possible to ask investors to vote on which strategy they prefer: his focused on organic growth or one he said would bring about a "dismantling of TIM".

Gubitosi, a former CEO of telecoms group Wind, is politically well-connected as commissioner for struggling carrier Alitalia, making him well placed to negotiate with the government over a potential spin-off and merger with Open Fiber.

Coming out of the board meeting that sealed his appointment, Gubitosi said he would seek to "boost cash-flow generation, cut debt and examine with care and speed the project for the creation of a single network".

But if the last six months are anything to go by, getting the board to approve the network spin-off and a merger with its rival will not be a smooth ride.

Genish said he had been working in a "totally dysfunctional" environment inside TIM, adding that several directors had been campaigning against him from day one.

"It was totally counterproductive and there was constant uncertainty about my position," he told Reuters.

Genish had been pursuing a three-year turnaround plan - backed by both Elliott and Vivendi in May - focused on a digital transformation and fixing TIM's finances. Some directors, however, wanted to see the shake-up proposed by Elliott, calling Genish's plan "obsolete", one source said.

Business decisions were leaked to the media hours after they were taken, sometimes being texted even as board meetings were ongoing, sources said.

New CEO Gubitosi campaigned for the job against another director from the Elliott camp, three sources said, pointing to rivalries that could persist. "Some board members have been after Genish's job for months," said one. Gubitosi did not reply to a request for comment.

Last week Genish was forced to agree to a 2 billion euro writedown of TIM's domestic assets, the people added, in a move that overshadowed signs of an operational recovery applauded by sector analysts.

"All these months, it was all about the network," a person familiar with board proceedings said. "There was a lot of pressure to do the spin-off and sell assets."

The government's draft amendment said the creation of a single network company would have to be on a consensual basis. That means Vivendi, which owns 24 percent of TIM, will have to agree to any inclusion of its network.

Vivendi Chief Executive Arnaud De Pufyontaine said a full spin-off of the network was "crazy", although that comment came before Rome's plans were leaked.

The French investor said this week it has no intention of selling its stake in TIM, so its battle with Elliott is only bound to intensify in the months to come.


The Netco, TIM's biggest asset, is worth up to 15 billion euros ($17 billion), according to analyst estimates.

Elliott has argued that spinning it off would realise up to 7 billion euros in hidden value, attract new investors and drive a re-rating of shares. It would help TIM offload big chunks of its 25 billion euros of debt and leave behind a capex-lighter service stub.

Italy plans to introduce a regulated asset base (RAB) for the merged network firm, allowing regulated returns on investments made, the draft amendment showed.

"This huge change makes NetCo into the perfect infrastructure asset investors love," one source said, adding a RAB would allow NetCo to trade at the 10-12 times EV/EBITDA multiple of RAB-regulated utilities such as Snam or Terna. TIM trades at 4.6 times, according to Refinitiv.

With no examples of RAB-regulated NetCos in Europe, it could take at least 18 months to put such framework in place, a critic said, adding Italy's fragile political front could complicate matters further.

Italy ranks 25th out of 28 EU member states in terms of take-up of ultrafast Internet, also raising questions about the possible returns for massive broadband rollout.

TIM management has argued Elliott's calculations for the ServiceCo's cashflow and dividends were too optimistic and a NetCo spinoff risked leaving a much weaker stub behind, without the financial benefits that vertically integrated telcos enjoy, potentially putting thousands of jobs at risk.

"They have no idea what they are up against. If not done right, this will be financial suicide," one source said.

An industry source said a single network operator made sense from an industrial and financial perspective but the competing interests of Elliot, Vivendi and the state made it very complex.

"It's not so much about the issue as it is about the power play between the two opponents and the government on the sidelines that has nothing to do with industrial logic."

(Additional reporting by Giselda Vagnoni, Stephen Jewkes, Stefano Rebaudo and Simon Jessop; editing by Philippa Fletcher)

By Agnieszka Flak

© Reuters 2018
Stocks mentioned in the article
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BASE CO., LTD. -2.47% 5920 End-of-day quote.-3.74%
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DRAFT INC. 9.06% 1144 End-of-day quote.-1.89%
ENEL S.P.A. 0.78% 8.4 Delayed Quote.0.71%
JUST GROUP PLC -1.46% 74.35 Delayed Quote.7.94%
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TELECOM ITALIA S.P.A. 2.75% 0.3658 Delayed Quote.-5.67%
TERNA S.P.A. 0.89% 6.138 Delayed Quote.-2.66%
VIVENDI SE 0.11% 26.31 Real-time Quote.-0.38%
WILL GROUP, INC. 4.97% 1057 End-of-day quote.5.07%
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P/E ratio 2020 17,6x
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Free-Float 76,4%
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Average target price 9,45 €
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