The Hedge Fund Barbarians Are Targeting European Telecoms

Telecommunications companies have long been the unglamorous workhorses of the stock market, favored by investors who appreciate the generous dividends thrown off by their utility-like business and, until recently, the relative lack of volatility in their share prices. But as the industry’s stocks have suffered—the index of big European telcos is down by a quarter since 2015—two U.S.-based hedge funds have been buying into the phone companies and advocating a radical solution: Stop running phone networks.

This paradoxical plan is being road-tested in Italy, where Elliott Management Corp., billionaire Paul Singer’s hedge fund, has staged a coup at Telecom Italia SpA. Elliott acquired 8.9 percent of the carrier and used its position to overhaul the board in May and then remove the chief executive officer on Nov. 13. The ouster advanced Elliott’s monthslong campaign for splitting out the company’s national network, an idea resisted by former CEO Amos Genish and French media conglomerate Vivendi SA, Telecom Italia’s biggest shareholder, with about a quarter of the stock. At the time of the Elliott purchase, Telecom Italia had “no clear strategic path forward” and needed dramatic action such as a spinoff of its network, the hedge fund said in a statement last spring.