Telecom Italia is tidying up its dual-class share structure. The conversion brings modest economic benefit, and plenty of drama.
The Italian telecoms operator is converting its outdated saving shares into ordinary stock, and raising 572 million euros in the process. Holders of each saving share can switch into a new ordinary one worth about 20 percent more at market prices from Nov. 5, and pay a cash premium that covers half the difference.
That might be a dull act of housekeeping, were it not for the big personalities who have made TI’s stock their plaything. French tycoons Vincent Bollore and Xavier Niel have built holdings in the group, pushing up the share price. Bollore’s media group Vivendi has 20 percent, while Niel, who owns mobile operator Iliad, has options potentially equal to a 10 percent stake.
Their arrival may have made conversion more attractive for TI’s management. The wider the spread between saving shares and the ordinary kind, the more cash TI can request from saving shareholders to convert, effectively raising new funds to cut debt and invest in its home market without having to go to banks or through the rigmarole of a rights issue.
There is some benefit for ordinary shareholders. True, they are effectively part-funding the conversion, because saving shareholders only pay half the price difference between the two share classes. But the company will have a bigger free float and tidier capital structure, helpful if another company were looking to buy it.
What of the Gallic raiders? It’s possible that the Frenchmen have been caught out by their own stake-building. Vivendi’s stake could fall to around 13 percent after the conversion. If so, the conversion may look like a defensive move by the board. After all, either raider might be eyeing a breakup of TI, or deeper corporate change.
It may also help smoke out their real intentions. Were it to emerge that Bollore or Niel had pre-emptively bought saving shares to defend their holdings, it would suggest that they are interested in keeping their level of control, as well as their economic exposure to TI. They may differ in their willingness to defend their respective stakes. And the conversion still needs shareholder approval, adding a further uncertainty. One troublesome mess has been cleaned up – another remains.