TI Telecom Italia S.P.A. New

By Manuela Mesco 

MILAN-- Telecom Italia launched a proposal for a plan that would dilute its current shareholders, a move that appears aimed at defending itself after two French billionaires built large stakes in the Italian telecoms giant.

Telecom Italia, Italy's former monopoly, said Thursday its board has proposed a share conversion that, if approved, would significantly reduce the stake held by France's Vivendi SA. After the conversion, Vivendi--now the largest shareholder in the Italian telecom operator--will see its stake fall to slightly more than 13% from 20% now. However, it would still be the single largest shareholder. The operation could also dilute a stake built up recently by Xavier Niel, founder of French telecom upstart Iliad. The share conversion requires the approval of shareholders.

The surprise move is the latest in a series of changes sweeping Telecom Italia, which has had a large turnover in shareholder structure in recent years and has struggled to mount a strategy to pull the heavily indebted company out of a long decline. Telecom Italia has launched a multi-billion-euro investment plan to combat the drop in its once-dominant position in the Italian telecom market.

Last week Mr. Niel took the company and market by surprise in building up a large stake in Telecom Italia. He bought options that, if exercised, could give him as much as 15% in the company. In such a case, Mr. Niel could become the second largest shareholder in the company after Vincent Bollore, who built a 20% stake through Vivendi SA in recent months.

Thursday evening, the company announced a proposal by the board to convert Telecom Italia's savings shares - which have no voting rights and command a lower price - into ordinary stock, which have voting rights. Savings shares' holders who accept the conversion will receive a cash payment of 95 euro cents ($1.03) for each savings share they hold. Shares not voluntarily converted will be subject to a mandatory conversion with less favorable conditions.

Given that savings shares make up about 30% of the company's total capital, such a deal would lead to a dilution of about 30% of all shareholders. In Mr. Niel's case, since he doesn't yet have a direct stake in the group, the dilution would mean that his options to buy shares would convert into a lower stake than previously expected.

According to Agathe Martin, analyst at Exane BNP Paribas, the plan would allow Telecom Italia to save an annual EUR166 million of cash in dividends and potentially raise up to EUR570 million from the voluntary conversion. "By supporting this proposal, Vivendi...will have the opportunity to prove its long-term support in Telecom Italia's investment plans," she added.

A spokesman for Vivendi and Mr. Niel declined to comment. Vivendi wasn't consulted before the proposal went before the board, according to the person close to the operation.

If approved in the next shareholders' meeting, called for Dec. 15, the conversion is expected to become effective before the distribution of the 2015 dividends, the company said. However, since Vivendi has a 20% stake with voting rights, the French company could try to gather support to defeat the proposal.

Telecom Italia will receive more than EUR500 million of cash flow coming from the conversion, said the person. The Italian firm said that the aim is to increase the free float and simplify its capital structure.

Nick Kostov in Paris contributed to this article.

Write to Manuela Mesco at manuela.mesco@wsj.com

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(END) Dow Jones Newswires

November 05, 2015 16:28 ET (21:28 GMT)

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