Telecom Italia is like 'rudderless ship', Vivendi says

By Silvia Aloisi and Gwenaëlle Barzic

MILAN/PARIS (Reuters) - Telecom Italia is like a "rudderless ship" because its board does not reflect its shareholder base, leading investor Vivendi said on Monday, signalling growing frustration as it risks being defeated in its push for board seats.

The comments by Vivendi chief Arnaud de Puyfontaine come after the French group said it would abstain from voting on a proposal to convert Telecom Italia's savings shares into ordinary stock at a Dec. 15 shareholder meeting. [nL8N1410M5]

That makes it difficult for the conversion to be approved, as it needs backing from a two-thirds majority of shareholders attending the meeting.

Telecom Italia said on Monday the holders of 55.64 percent of its stock had signed up for Tuesday's meeting, while it also emerged Vivendi held around 20.5 percent of Telecom Italia after rounding up its stake in November. [nI6N13P00X] [nI6N13P00Y]

The scene is also set for a broader showdown between Vivendi, Telecom Italia's board and investment funds that are big shareholders in the Italian group and support the conversion.

The clash could add to the problems of the indebted company, which has long struggled with a lack of clear strategy and is seen as a takeover target.

Telecom Italia's board approved the proposal to convert its 6 billion savings shares last month, in a move that would help it raise cash but also dilutes the holdings of both Vivendi and Xavier Niel, a French entrepreneur who has also recently taken an interest in the company. [nL8N13Y1H4]

Vivendi has invested more than 3 billion euros ($3.3 billion) in Telecom Italia since June and has asked to appoint four of its representatives to the board.

But that request is also likely to be rejected at Tuesday's meeting, as leading proxy advisers have recommended funds vote against it, infuriating the French group.

"Vivendi is saying enough is enough," said a source close to the matter. "It is not possible for them to have paid more than 3 billion euros and not be represented on the board. Either the board takes that into consideration or the composition of the board will have to be reviewed."

NO CONFIDENCE

A second source said that if the conversion were to be rejected at the meeting on Tuesday, that would amount to a vote of no confidence in Telecom Italia's board.

"For a quality company like Telecom Italia, having a board that does not reflect its shareholder structure is like having a rudderless ship," de Puyfontaine told Corriere della Sera daily in an interview.

Telecom Italia's savings shares , which closed the gap with ordinary shares in recent weeks because of expectations the conversion would pass, closed down 10.7 percent at 0.88 euros. The ordinary shares fell 1 percent to 1.088 euros.

One of the sources said Telecom Italia's board could try to find a solution before Tuesday's meeting, either by dropping the vote on the conversion or by offering Vivendi board seats.

But in the absence of a last-minute compromise, the meeting could end with both sides nursing a defeat, although Vivendi could then ask for another shareholder meeting to be convened.

The conversion would dilute Vivendi's stake to around 14 percent. De Puyfontaine said on Monday the group was "absolutely in favour" of the plan, but did not agree with the terms, which require a cash payment of 9.5 euro cents to convert a saving share into an ordinary share.

He said a bigger payment, such as 12.5 or 15 cents, would earn Telecom Italia more cash and would be more in line with what he said was the historic 20 percent spread between the two classes of shares.

(Additional reporting by Stefano Rebaudo and Valentina Za in Milan; Editing by David Holmes)