Elliott purges TIM boardroom but keeps hold of valuable Genish

Despite activist investor Elliott leading a coup d’état in the Telecom Italia boardroom, Vivendi man Amos Genish has confirmed he will continue as CEO, providing some much need stability for the Italian telco.

Elliott’s slate of nominees for the board winning the shareholder vote is perhaps nothing we should be surprised about, though securing the continued services of Genish was a bit more tenuous. With Elliott pushing the ‘pump and dump’ strategy, decimating the long-term vision of Genish, the CEO has hinted he may look longingly towards the fire escape should Elliott win control of the boardroom. Fortunately for TIM and its investors, Genish has agreed to stick around for the foreseeable future.

“Today, we have confirmed our full confidence in Amos Genish and his management team that we will support in the implementation of the 2018-2020 Strategic Plan,” said Chair of the Board of Directors, Fulvio Conti. “My long-term commitment to TIM, along with Amos’ one and his considerable industry experience, aims at further strengthening the Group and creating value for all our stakeholders.”

“I confirm my long-term commitment to the transformation of the Group, which aims to reaffirm TIM’s position as an international best in class business,” said Genish. “We are on the right track and have a great management team. The complete support of the new Board enables us to continue implementing the DigiTIM strategy, which is already bearing fruit and delivering the value TIM is capable of creating.”

The vote, which actually occurred last week, was by no-means a landslide. 49% voting in favour of Elliott’s slate, while 47% pushed for Vivendi. In winning the vote, Elliott now has ten representatives, while Vivendi selected the five most important from its own ten nominations. Yesterday (Monday May 7) was the first meeting of the new board, with the unanimous decision to reinstate Genish being announced late in the evening.

Securing dominance on the new Board of Directors was of course the primary objective for the disruptive Elliott, though it would have meant nothing if Genish has exited the business. Without Gernish, TIM would have been appointing its fourth CEO in a period of just over 18 months, creating the image of a business hanging on by a thread. This would not be good for TIM share price.

Financial markets love stability. Investors do get excited about the appointment of an international heavyweight as CEO, but a new boss means a new plan. That does not reinforce the idea of stability or making money. TIM has a strategy, which has taken a while to develop, and now for the first time in years it has to start moving in the right direction.

This is partly why this victory for Elliott should be seen as slightly hollow. It does have control of the boardroom, but to keep Genish at the business it has had to water down its demands and objectives. Selling off assets is now highly unlikely, as is the reintroduction of a dividend. Investment in the network might continue, though it is likely to be lessened. Elliott will allow Genish to follow through on the DigiTIM strategy, but it is unlikely to be as bold as the first draft.

TIM finds itself in quite an awkward position now; moving forward with a strategy which is wholeheartedly supported by a minority of board members. Elliott’s objectives have always been clear, reintroduce the dividend, increase share price quickly and sell the TIM stake for a profit. But Genish’s and Vivendi’s DigiTIM plan is a long-term one. It requires investment, patience and diplomacy, three traits which are seemingly contradictory to the Elliott business model.

While there is still a lot of support for Genish and his plan, the impact on the business is now questionable. Unless Elliott throws all its weight behind a long-term business strategy, which is potentially capital heavy, it is only going to fail. How this new dynamic plays out remains to be seen, but we are not entirely confident.