Telecom Italia on Thursday proposed undertaking a savings shares conversion, a move that would reduce the stakes of major shareholder Vivendi and newly arrived owner Xavier Niel.
The announcement came just ahead of the publication of the Italian incumbent’s financial results for the first nine months of the year, which showed small declines in revenue and earnings.
The telco’s share proposal includes a voluntary conversion, which would see holders of savings shares pay 9.5 euro cents per share to convert to an ordinary share. Shareholders who choose not to pay will get 0.87 ordinary shares for each savings share, thereby diluting their stakes.
Holders of savings shares will vote on the proposal at a meeting in December.
The proposal makes sense from a financial perspective. Telecom Italia said it is aimed at simplifying its capital structure and improving liquidity. Proceeds "will be used to cover the innovative investments’ plan of the company for both fixed and mobile networks," it said.
The move is more difficult to explain from a strategic point of view and has naturally raised questions because of the timing; it is just a week since it emerged that Xavier Niel has built up a stake of 15.2% in long positions in Telecom Italia.
"Is this a move to disrupt Vivendi’s and/or Xavier Niel’s plans for TI? Is this a move orchestrated by Vivendi to limit Xavier Niel’s next move?" Berenberg analysts asked on Friday.
The short answer is, it’s too early to tell.
The analysts point out that if the conversion goes ahead, Vivendi’s stake will fall to about 14% from 20.03%, while Niel’s will drop to around 10%.
They calculate that, given the way the shareholder meeting quorum and the voting thresholds work, a single shareholder could effectively control Telecom Italia with around 20%. However, it is questionable whether either Vivendi or Niel would want to invest in more shares at this stage.
"We struggle to see the rationale for Vivendi/Niel to be supportive of a savers conversion that costs them more money," the analysts said, admitting that the rationale behind the proposal remains far from clear.
Telecom Italia’s results for the first nine months of the year were a little easier to read.
The telco posted revenue of €14.9 billion for the period, down by 6.9% year-on-year, or a decline of 3.9% on an organic basis. The Italian market contributed three quarters of the total, its turnover falling by 2.2% organically to €11.13 billion.
EBITDA slid by 14.8% to €5.6 billion, or 13% organically, hit by non-recurring charges totalling €460 million. Excluding those charges, Telecom Italia said EBITDA would have fallen by 4.8% on a like-for-like basis.
Net profit fell by 63% to €362 million, impacted by non-recurring charges, bond buyback transactions and accounting items.
"In the absence of these impacts the profits of the first nine months of 2015 would have been over €1 billion," the operator said.
"The results of the third quarter confirm the trend of improving revenues, particularly in mobile, which records an increase of 1.5% on the third quarter 2014 and a solid recovery also with respect to the other periods", said Telecom Italia CEO Marco Patuano.
