TIM board reshuffle indicates some serious Vivendi muscle

Vivendi seemed to take another step towards control of Telecom Italia, with two thirds of the Italian operator’s Board now comprised of Vivendi nominees.

The latest announcement sees the Telecom Italia Board of Directors reduced from 17 to 15, with 10 of those seats being filled with Vivendi nominees. Just for clarity, only three of the appointees are employees of the French organization, however it would be fair to assume the five ‘independent’ Vivendi nominations would know who should be stroking their centre parting.

Total annual compensation for the board now stands at €2.2 million for the 15 to split between themselves. Not bad for turning up every now and then and fielding the odd conference call. Even if you accept those board members that are not directly employed by Vivendi are totally independent it does seem odd that a minority shareholder is able to determine the majority of the board.

The other two of the ten, Giuseppe Recchi and Flavio Cattaneo, are Telecom Italia employees, however Cattaneo was appointed CEO just after Vivendi increased its interest in the operator. Cattaneo has no previous experience of running such a vast organization, and is a serial Independent Director. Having said that the company’s recent quarterlies were broadly positive so he seems to be doing something right.

The French media giant has been in the suspect position of owning 23.943% of Telecom Italia shares for some time, just below the threshold required for a mandatory bid, making it the largest influencer. Under Italian law, individuals or investment bodies are required to make a mandatory offer to acquire large organizations once 25% of the voting rights has been secured. This is of course under the assumption the European Commission would allow an acquisition of this nature, considering its sensitivity to competition, that is a dubious position.

Perhaps another question which should be addressed is the influence which the company now has. Whether it is fair, ethical or sensible for a company only owning 23.943% of shares to nominate 66% of the Board of Directors remains to be seen. If the board effectively controls the contract of the CEO, this would appear to be a disproportionate amount of indirect influence to hand over.

The next step for the board is to select a new Chairman. Current Chairman Recchi is still in the running, but so is Vivendi CEO Arnaud de Puyfontaine, as well as CFO Herve Philippe and General Counsel Frederic Crepin; it’s an ominous sign for the Italians, who are very publicly losing control of one of the country’s largest organizations.

Combining its shareholding influence along with two-thirds of the Board of Directors puts Vivendi in a useful position. The company can effectively indirectly influence the direction of the Italian giant, without having to fork out billions to acquire it. It’s a handy little loop-hole as Vivendi continues its quest to create a South-Europe media mammoth, but it shouldn’t be too long before locals are rubbed up the wrong way.

In an effort to stay on the good side of regulators, Vivendi has also offered concessions to the European Commission to avert attention away from media pluralism concerns. Details of the concessions are not known for the moment, though it would appear to be a move to subdue the European Commission, which will be keeping a wary eye on the influence Vivendi is exerting over Telecom Italia.

The European Commission may be an incredibly slow-moving body, but there are only so many times the boresome bureaucratic bear can be poked before a there’s a reaction. Vivendi would be wise to tread carefully here.