CEO of Telecom Italia to fall on his sword (with a bit of a helping hand from behind).

Oct 1, 2013

As of the quarter ended June 30 this year Telecom Italia posted debts of US$38 billion - a truly astonishing sum. Meanwhile, the carrier's stock price has fallen for nine years in succession. At the end of 2012 it had collapsed by more than 70 per cent since 2007, when Bernabe was appointed, and has dropped a further 15 per cent so far this year. Small wonder the shareholders are restive. They have had to write-down the value of their investments year after year after year, time after time after time.

On September 27 a Telecom Italia share was worth just €0.58 and the credit rating house Moody's has said it is minded to categorise the telco's shares as junk.

This put intense pressure on Franco Bernabe to do something to strengthen Telecom Italia's balance sheet but, seemingly, the only thing he could think of was to go for a rights issue; a proposal that caused ructions amongst shareholders and cost Bernabe the confidence of some big and influential investors.

Amongst those withdrawing support for the CEO are the 'Telco SpA' consortium of investors who between them control 22.4 per cent of Telecom Italia's shares. According to postings on its website, 11 of the operator's 14 directors (including the CEO) were nominated by Telco and the group is now inclined to start dis-nominating them, starting with the Mr. Bernabe.

Telco SpA has made it known that it wants Massimo Sarmi, the head of Poste Italiane, to be the next permanent CEO of Telecom Italia but it is willing to agree to a short post-Bernabe interregnum and have named either Telecom Italia independent board director Jean-Paul Fitoussi or COO Marco Patuano as a likely interim leader.

Franco Bernabe hasn't done himself any favours by making a virtue of bull-headed inflexibility and obstinately sticking to his plans for a rights issue in the face of vocal shareholder and analyst opposition. His original plan for the upcoming Board meeting on Thursday was to commend a rights issue of €6 billion, with the first and almost immediate tranche designed to raise at least €3 billion in short order. In the light of changed circumstances Bernabe will instead be offering his reignation.

He drove himself up a cul-de-sac by willfully following a course that was at complete variance with the publicly stated interests and intents of the shareholders. He wants a rights issue, no-one else does. He is in a minority of one and now he will pay the price of his intransigence.

Franco Bernabe has been the CEO of Telecom Italia before. He was head honcho from 1998 to 1999 but was removed when the telco was acquired by Olivetti. Remember that? It all seems so long ago and so far away. He took over for his second stint as in 2007 and became Chairman as well as CEO in 2011.

Francisco Salvador, a telecoms analyst with FGA/MG Valores in Madrid put the matter in a nutshell when he commented "Telecom Italia has for a long time lost its track and it now lacks the dynamism that a telecom company needs. It is now time for others with a clearer industrial and strategic vision to take over the helm.”

Telecom Italia itself refuses either to confirm or deny the resignation rumours so we'll take that as sotto voce affirmation, especially as the Italian media, citing 'informed and reliable sources' is already speculating on the size of Bernabe's likely severence package and are gearing up for another campaign about rewards for failure and the inexhaustible corruption of the Italian state.

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