Vivendi's Appeal: A Turning Point for TIM's Future?

Vivendi, the French media conglomerate and Telecom Italia's (TIM) leading shareholder, has announced its intention to appeal the Milan court's decision regarding the sale of TIM's fixed-line network to US fund KKR. The appeal, set to be filed after the court dismissed Vivendi's challenge on purely formal grounds, could have significant implications for TIM's financial stability and shareholder value. In this article, we will explore the key legal arguments Vivendi plans to present in its appeal, the potential impact on TIM's financial stability and shareholder value, and the strategic implications for KKR and other potential investors in TIM.



Key Legal Arguments in Vivendi's Appeal

Vivendi plans to present the following key legal arguments in its appeal against the Milan court's decision:

1. Shareholder vote requirement: Vivendi argues that the sale of TIM's network, an essential asset of the company, should have been subject to a vote at a Shareholders Meeting. This is because the sale would change the corporate purpose of TIM. Vivendi believes that the board's decision to sell the network without submitting it to shareholders was illegal.
2. Related party transaction procedure: Vivendi also argues that the sale should have been submitted to the related party transaction procedure, as the sale involved a significant transaction with a related party (KKR). The board's failure to follow this procedure is another legal basis for Vivendi's appeal.
3. Lack of standing: The Milan court dismissed Vivendi's request on purely formal grounds, notably because Vivendi would not have declared its voting intention in the event of a Shareholders' meeting being convened. Vivendi contests this decision and argues that its lack of declaration does not negate its right to challenge the sale.

Impact on TIM's Financial Stability and Shareholder Value

The outcome of Vivendi's appeal could have significant implications for TIM's financial stability and shareholder value:

1. Financial Stability: If Vivendi's appeal is successful and the sale is annulled, TIM would retain its fixed-line network, which is a significant asset. This could potentially improve TIM's financial stability by reducing the company's debt load and maintaining a steady revenue stream from the fixed-line network.
2. Shareholder Value: The outcome of the appeal could also impact shareholder value in several ways:
* Vivendi's Stake: If Vivendi wins the appeal, it could potentially increase the value of its stake in TIM. Vivendi valued the fixed-line network at about 31 billion euros, which is higher than the agreed sale price of up to 22 billion euros. If the sale is annulled, Vivendi's stake in TIM could become more valuable.
* Other Shareholders: If the sale is annulled, other shareholders might also benefit from the increased value of TIM's assets. However, if Vivendi's appeal is unsuccessful, other shareholders might see a decrease in the value of their shares due to the loss of a significant asset.
* Potential Sale of Vivendi's Stake: If Vivendi's appeal is unsuccessful, it might decide to sell its stake in TIM. This could potentially lead to a decrease in shareholder value, as Vivendi is looking for a price of between 1.0-1.5 billion euros, which is lower than the current value of its stake (around 930 million euros). However, if Vivendi's appeal is successful, it might decide to hold onto its stake, potentially increasing its value.



Strategic Implications for KKR and Other Potential Investors in TIM

Vivendi's appeal has several strategic implications for KKR and other potential investors in TIM:

1. Uncertainty and Delay: Vivendi's appeal could introduce uncertainty and delay the finalization of the sale, which was completed in June 2023. This uncertainty may deter other potential investors from entering the market or engaging in negotiations with TIM, as they may be waiting for the outcome of the appeal before making any decisions.
2. Potential Reversal of the Sale: If Vivendi's appeal is successful, the sale of the fixed-line network to KKR could be reversed. This would have significant implications for KKR, as they would lose their investment in the network. Other potential investors may also be discouraged from investing in TIM, given the risk of similar legal challenges in the future.
3. Reputation and Trust: Vivendi's persistent challenge to the sale could damage KKR's reputation and trust among other potential investors. If Vivendi's claims are found to have merit, it could raise questions about KKR's due diligence process and their ability to make sound investment decisions.
4. Shareholder Activism: Vivendi's appeal highlights the importance of shareholder activism and the potential for minority shareholders to influence corporate decisions. Other potential investors may take note of Vivendi's actions and consider engaging in similar activism if they believe their interests are not being adequately represented.
5. Potential for Higher Sale Price: If Vivendi's appeal is successful, it could lead to a higher sale price for the fixed-line network. This could attract other potential investors who may be willing to pay a premium for the asset, given its strategic importance to TIM and the Italian telecommunications market.
6. Regulatory Scrutiny: The appeal could also attract regulatory scrutiny, as it raises questions about the sale process and the role of shareholders in approving such transactions. This could lead to changes in regulations or increased oversight of similar transactions in the future, which could impact other potential investors.

In conclusion, Vivendi's appeal against the sale of TIM's fixed-line network to KKR has significant implications for TIM's financial stability and shareholder value, as well as strategic implications for KKR and other potential investors in TIM. The outcome of the appeal could shape the future of TIM and the Italian telecommunications market, as well as the broader investment landscape. As investors, it is crucial to stay informed about the developments in this case and consider the potential impacts on our portfolios.