Contrarian Corpus
activist full deck initial thesis
2018-04-05 · 37 pages

Telecom Italia SpA (TIM) TIT.MI

N 5 Narrative
V 4 Visual
C 4 Craft
Original source ↗

The three reasons

  1. 1

    Vivendi controls TIM with just 24% voting stake, running it as a subsidiary while minorities suffer

  2. 2

    TIM stub has underperformed peers by 62.6% since Vivendi joined board in Dec-2015

  3. 3

    Independent board + NetCo separation could roughly double the share price from 0.8 to 1.6

Primary demands

  • Replace 6 Vivendi-nominated directors with 6 independent directors at April 24th AGM
  • Legal separation / deconsolidation of NetCo (access network) to unlock hidden value
  • Stake sale in Sparkle to a strategic partner
  • Further monetisation of INWIT towers stake
  • Convert savings shares into ordinary shares to simplify capital structure
  • Reinitiate a stable dividend to ordinary shareholders
  • Retain support for current CEO Amos Genish and his Business Plan

KPIs cited

TIM Stub total return since Vivendi joined board (Dec-2015 to Mar-2018)
-62.6% vs. FTSE-Mib +10.2% and SXKE -12.6%
Stub NTM EV/EBITDA discount vs. peers
widened from ~(6)% in mid-2015 to ~(22)% by Feb-2018, 3x increase
TIM Domestic Organic EBITDA growth 4Q16
+7.5% after years of declines (-10.4% in 1Q15)
Fiber coverage of Italian population
grew from 19% in 1Q14 to 77% in 4Q17, targeting >80% by 2020
Vivendi profit leverage via Bolloré
$1 of profit at Vivendi is 6x better for Bolloré than $1 at TIM; 12x better when multiples are included
Equity Free Cash Flow cumulative 2018-20
€4.5bn per TIM Business Plan, up €2.9bn vs. 2015-17
NetCo valuation range
€15-25bn vs. current implicit €9bn; prior CEO Cattaneo indicated €20-25bn in Jun-2017
Potential hidden value from separation
Up to €7bn, or 41% of market cap, or €0.32 per share
CEO severance for Flavio Cattaneo
€25 million for only 16 months in service
Havas advertising mandate awarded by TIM in Jan-2017
€91 million in 2017, to Bolloré-owned Havas
Pro-forma leverage post-deconsolidation
Net Debt / EBITDA of 1.9x vs. current ~3.7x
Implied ServiceCo dividend
€1.2bn in 2019 at 6.4% yield, with 1.4x FCF coverage

Pattern membership

Where this document fits across the library's 12 rhetorical / structural patterns.

Notable slides (10)

Notes

First Elliott presentation on TIM, published alongside the transformingTIM.com website campaign ahead of the April 24, 2018 AGM proxy fight against Vivendi. Clean SCQA: Situation (TIM has strong fundamentals), Complication (Vivendi-controlled board has destroyed value), Question (what should shareholders do), Answer (vote for independent directors, then unlock value via NetCo separation, savings-share conversion, deleveraging, dividend reinstatement). Page 5 is a textbook peer-gap waterfall; page 15 uses a 'Bolloré-Vivendi-TIM' cash-flow diagram to illustrate the 6x/12x profit-shifting math; page 21 quotes Bolloré verbatim ('We don't manage Telecom Italia and we will never manage it') to expose the contradiction; page 28 is the classic value-creation bridge (Current 0.8 -> Full Value 1.6); page 33 is the 7bn-EUR SOTP reveal. Elliott won board control at the April 24, 2018 AGM.