In European stock markets, due to lack of share price volatility and investors only appreciating the generous dividends by their utility-like business, the charm of Telecommunication companies have become faded. Two of the United States based hedge funds, with their buying of phone companies share amidst telco industry’s suffering stock and about 25 percent of the decline in index, have been suggesting these companies a sweeping solution of closing their telco businesses, they already road-tested the same in Italy.
In the Telecom Italia SpA, 8.9 percent of shares have been owned by the Elliot Management Corp., hedge funds of billionaire Paul Singer. With its stake in the network carrier, Elliot becomes succeeded to remove the CEO of Telecom Italia on November 13 after becoming influential by restructuring its board just few months ago in May. To the resistance, to a narrative of Elliot for splitting the company, not only by the CEO Amos Genish but also by the Vivendi SA, the biggest shareholder with an ownership of 25 percent shares of Telecom Italia, this ouster of CEO advanced the Elliot’s narrative. Last spring in a statement, the hedge fund emphasized upon the requirement of radical procedures like network spinoff in absence of the “no clear strategic path forward” by the Telecom Italia at the time of Elliot purchase.
For their narrative of splitting the telecom companies, activist investors suggest telcos to follow the path of energy industry which has mostly separated its retail operations from the power grid and pipelines segments. And in time of high yielding by the telcos, this proposal of splitting may not seem considerable to shareholders but telcos should now be more inclined to listen to the hedge funds in time of sector seeing stalling growth.
In July this year, stake in Europe’s biggest mobile operator Vodafone has been built by the Elliot, without disclosing the size of its position.