Telecom Italia is reportedly scouring through bank statements, trying to figure out whether it can purchase Nextel Telecommunicacoes in an effort to boost market share.
The move itself might be considered by some as somewhat of an unusual one. With activist investor Elliott Management pulls the strings of nine board members, the business has seemingly been favouring strategies which would return cash to investors across a shorter period of time. One of these ideas might have been a disposal of assets, making any acquisition rumours slightly out of the ordinary.
According to Bloomberg, TIM is considering the move to absorb the fifth largest Brazilian telco to improve market share and spectrum holding in certain parts of the market. The Brazilian business is the only market of genuine note for TIM outside of Italy, and has been aiding the overall performance for the group, though the emergence of acquisition rumours are slightly unusual. Brazil is a highly competitive market, there are seven telcos of note and hundreds of minor regionalised companies, which does not make it seem like a bet of particular value to the short-termist investor.
CEO Amos Genish and certain executives do have an eye cast on the long-term, and most likely greater, success of Telecom Italia with the TIM2020 strategy, though you cannot argue with the majority. Thanks to some pretty effective rousing and sh*t-stirring, Elliott now has control of the board. It might not want to rock the boat too much when it comes to altering the TIM2020 strategy, losing Genish at this point would not be healthy for anyone involved, though we suspect it might have enough muscle on the board to quell any ambitions for expensive acquisitions.
For a telecommunications company which has its eye on the distant horizon and is concentrating on building value in the business for the greater gains in the long-run, this acquisition makes sense. However, with Elliott Management pulling the strings, strings which do not have much slack, we find it hard to believe rumours are not focused on more short-term profitability.
Why would such a short-termist investor allow the board to entertain an idea which will possible decrease profitability, reduce free cash and continue the trend of absent dividends, which has existed since 2013. This doesn’t quite make sense to us.