A board challenge for Telecom
Sweeney Vesty has just sent me a press release, which I’ll quote below:
Elliott International, L.P., together with funds under common management (“Elliott”), a 30-year-old private investment firm and shareholder in Telecom Corporation of New Zealand Ltd. (TEL.NZ), today nominated two local, independent, candidates to the Board of Directors to provide new thinking and new ideas regarding the future strategic direction of the company.
The Board candidates, who will stand for election at the Annual General Meeting on October 2, are Mark Tume, from Wellington, an experienced director with a banking and funds management background, and Mark Cross, from Auckland, who has a global financial markets background specialising in utilities. The candidates have agreed to stand on the basis that, if elected, they will be independent and will represent the interests of Telecom and all of its shareholders. Elliott believes that the candidates’ understanding of investor needs will create a cooperative and energetic environment between the Board and its shareholders.
“For almost a year we have been trying to talk to Telecom about some of our ideas and concerns regarding the affairs of the company. Telecom’s share price has been in decline over the past few years and once again, following disappointing year end results, its share price is around a fifteen year low. In our view, Telecom’s performance languishes behind that of other key telecommunications players in the international market, and we believe this is partly due to an unclear and outdated strategy. Shareholders and customers remain dissatisfied with Telecom’s progress,” said James Smith, a portfolio manager at the fund.
Elliott believes that the appointment of Mark Cross and Mark Tume will provide a fresh perspective to the current challenges Telecom faces. Both Mark Cross and Mark Tume have considerable strengths in the finance and investment industry, strong commercial and strategic acumen and unique skills that will provide extra depth and new ideas for Telecom. Their expertise in financial strategy will be of particular value to the Board.
According to Elliott, Telecom needs to take immediate and serious action to improve its situation and to consider and debate new ideas that will benefit customers and shareholders.
One idea that Telecom has been asked to consider by Elliott over the past year is ‘structural separation’ — the next logical step in the operational separation process that Telecom began earlier this year. This idea involves a simple structural split of Telecom’s retail business (‘NewCo’) from the remaining wholesale and network business of Telecom (‘NetCo’). This structural separation idea was first proposed by Elliott in November 2007 when Elliott and other interested groups publicly commented on Telecom’s operational separation plan. The proposal is still available on Ministry for Economic Development’s website at http://www.med.govt.nz/templates/ContentTopicSummary____32573.aspx.
Since that submission, Telecom’s management and the Board have been provided with extensive research and analysis on the structural separation proposal, including reports from global consultancies on key feasibility issues – regulatory and legislative implications, cost, and technical issues. The research also outlines the significant benefits the proposal could bring for Telecom, its shareholders and customers.
Now what this is about, is a minority shareholder saying we think Telecom would be more profitable if it does full structural separation (something I think is also beneficial for Telecom and for consumers), and as Telecom won’t agree with us, we are going to try and get two Directors on the board who will look at supporting this.
Now Elliott are not one of the top 20 shareholders, so their chances of success are somewhat limited. But with this board challenge, they will force other shareholders to consider the issue of whether Telecom would be better off with structural separation.