(Bloomberg) – Telecom Italia’s board approved a proposal to convert the company’s savings shares into ordinary shares and reduce share capital, advancing a long-discussed change that seeks to simplify its capital structure.
The proposal will be submitted to shareholders at meetings scheduled for January 28, including ordinary, extraordinary and special meetings, the company said in a statement released on Sunday, confirming a previous report by Bloomberg News.
The plan has been debated for years, but gained momentum recently after the former state-owned telephone company received around €1 billion ($1.2 billion) as a result of a court ruling related to concession fees in the late 1990s.
The total theoretical cost of the operation is approximately €700 million, of which around €500 million relates to dividends that were no longer paid to holders of savings shares in the last three years. If approved, the operation will eliminate savings shares, a class without voting rights but with preferential economic rights, and will leave the company with just one class of listed shares.
Savings shares represent a relevant portion of Telecom Italia’s capital and have long been seen as a structural complication for investors. The elimination of this class could improve the liquidity of common shares, expand the shareholder base and reduce governance and administrative costs associated with maintaining multiple listed instruments.
For current ordinary shareholders, the measure could expand the share base and dilute holdings, while leaving the company with a single class of listed capital.
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According to the plan, the conversion will take place in two stages. Initially, holders of savings shares will be able to choose to convert each share into one Telecom Italia ordinary share, plus a cash payment of €0.12 per share. Savings shares remaining outstanding at the end of this optional period will then be compulsorily converted at the rate of one ordinary share plus a cash adjustment of €0.04 per share.
The conversion is linked to a voluntary reduction of Telecom Italia’s share capital to €6 billion. The company stated that the two measures are inseparable and need to be approved together for the operation to move forward.
According to the company, the transaction aims to rationalize the capital structure, simplify ownership and governance and reduce costs associated with the existence of multiple classes of listed shares. Telecom Italia also hopes that the initiative will create conditions to improve liquidity and increase the free float of ordinary shares.
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Savings shares were introduced in Italy in the mid-1970s and were aimed at retail investors interested in income rather than influence, offering higher dividends in exchange for no voting rights. Over time, this structure lost appeal as companies and investors advocated simpler governance models and single, more liquid share classes.
The conversion still depends on the fulfillment of several conditions, including the approval of the mandatory conversion at a special meeting of shareholders of savings shares. Holders who do not approve the mandatory conversion will have the right to withdraw, with the settlement value set at €0.5117 per share. The company informed that the maximum disbursement with withdrawals is limited to €100 million, a condition that can be waived.
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