An expected battle for control over Mediaset may have been averted, but the Italian broadcaster’s 2017 annual meeting was still animated by unexpected developments.
Mediaset has long been controlled by the Berlusconi family’s Fininvest. French multinational Vivendi had set the stage for a confrontation by building up a 29.99% stake in the broadcaster, largely over a two-day period in December 2016. That’s certainly not out of character for Vivendi, which has a history of trying to use large stakes to direct strategy and even take control. Fininvest responded by lodging a complaint over market manipulation, and increasing its own stake to more than 40%.
However in April, antitrust concerns led the Italian communications authority, AGCOM, to order Vivendi to reduce its voting stake in either Mediaset or Telecom Italia, and the company decided to freeze any voting rights at Mediaset exceeding 10% in order to comply. A further sign of the retreat was Vivendi’s decision not to propose any lists of candidates for the election of statutory auditors, besides the two submitted by Fininvest and institutional investors. Ultimately, Vivendi didn’t participate in the meeting, declining to register their shares to vote.
Fininvest fortified its position in Vivendi’s absence, as the board obtained shareholder authority to purchase up to 10% of share capital, providing a protection barrier against the threat of a potential bid. Moreover, with support from institutional and individual investors, the board has activated the whitewash mechanism, meaning that Fininvest will not be required to make a mandatory tender offer should it purchase shares above a legal threshold.
However the atmosphere was still tense, particularly in relation to Vivendi’s July 2016 withdrawal from an agreement to purchase Mediaset’s pay TV unit, Mediaset Premium. The aborted transaction had a significant impact on Mediaset’s 2016 financial results, which included a net loss of €151 million, and appears to have inhibited its growth. Moreover, Mediaset’s executive chair, Fedele Confalonieri, firmly believes that the pay TV deal, along with the subsequent buildup in Vivendi’s stake, are part of a hostile takeover. The hostility is likely to continue after Mr. Confalonieri announced that a new legal claim against Vivendi was filed at beginning of June, alleging contract violation, unfair competition and breaking TV pluralism laws. The company has also requested that Vivendi’s purchase of Mediaset shares be declared null and divested.
Approval of the remuneration report was another delicate item on the AGM agenda. The proposal has received high opposition in recent years (36.7% in 2015, and 38.1% in 2016) due to a range of structural concerns – including high fixed pay and potential severance levels, a policy of bundling annual non-compete payments into executive salaries, and an equity plan that included the controlling shareholder among the beneficiaries – and opaque disclosure. The 2016 result came despite modest improvements to the pay structure, and it appears that the board was aware that more significant changes would be required to increase support: the revised policy submitted for the 2017 AGM includes an overhauled short-term incentive, and the removal of both discretionary awards and annual non-compete payments from any new contracts. Shareholder support increased significantly, to 91.63%.
However, some critics of the pay structure, as well as the company’s business plan, remain. Arturo Albano, fund manager for Amber Capital, which holds 2.5% of Mediaset, raised concerns over costs, executive compensation and strategy, questioning whether management is up to the job and calling for the consideration of alternative projects, strategic partnerships and mergers.
With high support levels at the AGM and the threat of a takeover receding, Mediaset’s board and management are likely breathing a sigh of relief. However, they may want to pay attention to Albano’s concerns. Amber’s 2.5% stake makes it a relative minnow compared to Fininvest and Vivendi; but the support that minority investors like Amber provided for the buyback and whitewash was crucial in allowing Fininvest to defend its position without making a full tender.