Global Insight Perspective | |
Significance | Novator, the Icelandic investment group with the largest stake in Elisa, has failed in its bid to restructure the company and install two representatives on the company's board. |
Implications | Despite losing the vote, albeit by a narrow margin, Novator has highlighted what it considers a poor performance from Elisa, and will be heartened by the level of support it received. |
Outlook | While an immediate change of strategy is unlikely to happen, the revolt will galvanise the Elisa board to be more adventurous in pursuing growth opportunities away from home. |
The board of the Finnish telecoms group, Elisa, survived a shareholder revolt led by the company's largest shareholder, Novator, in what could have triggered the break-up of the company. Novator, the Icelandic investment vehicle controlled by Thor Bjorgolfsson, had called the meeting to press for a board shake-up as it aims to install two representatives on the Elisa board. Novator also wants Elisa to be split into two, with a holding firm for its overseas operations, and a local unit to manage daily operations in Finland.
However, in a vote at the company's extraordinary meeting yesterday, Reuters reports that about 35.4 million votes were cast in favour of the current board staying, with 30.9 million votes (46.6%) against it. Reacting to the defeat, Bjorgolfsson said Novator will continue to seek representation in the board. "Membership on the Elisa board would have been fair," he said, adding that Novator would again propose its two candidates, Tomas Otto Hansson and Orri Hauksson, to be voted onto Elisa's board at the annual general meeting.
Outlook and Implications
Preference for Status Quo: The defeat of Novator, albeit by a small margin, continues the trend among leading telecoms companies not to capitulate to the demands of revolting shareholders. Over the past few years, several high-profile shareholder revolts aimed at forcing change in different telecoms companies have ended in defeat. In May 2006, a revolt by Sebastian Holdings to force the break-up of Vivendi into a media and telecoms unit failed to galvanise enough support. Sebastian Holdings was seen as being sympathetic to Vodafone, and was thus accused of seeking to isolate Vivendi's SFR unit to enable Vodafone launch a takeover bid. Vodafone, for its part, has weathered the storm too. The company's board managed to fend up a call by Efficient Capital Holdings in July 2007 for the company to spin off its Verizon Wireless stake into a tracker share. Perhaps the most widely reported recent shareholder revolt in the industry involves Motorola, where billionaire investor Carl Icahn fought a relentless battle to get himself on the company's board. Although he failed in that bid, he achieved something of a victory when Motorola's chief executive eventually stepped down in December last year. Novator, which controls about 14.9% of Elisa, may have sensed potential defeat and had, in December 2007, suggested it was happy to put off the vote on the company's restructuring temporarily to calm the situation (see World: 7 June 2007: Under the Spotlight—Shareholders Seek Break-Up of Vodafone, 8 May 2007: Icahn Loses Bitter Board Seat Fight at Motorola and France: 18 May 2006: No Hope yet for Vodafone to Grab SFR).
Some Merits in Novator's Demands: Although Novator may have lost the vote to force a restructuring of Elisa, the Icelandic group has highlighted the shortcomings of Elisa's current business strategy. Novator accuses the Elisa board of being too cautious and failing to exploit growth opportunities abroad. As one of the two main alternative telcos in the Nordic region, Elisa has failed to expand abroad, whereas Tele2 has gone on to become a renowned pan-European alternative player. Elisa operates in only Finland and Estonia, making it highly vulnerable to tough operating conditions in those markets. The group is only the third-largest mobile operator in Estonia and continues to battle it out with Sonera and the Finnet Group (including DNA) for customers in Finland. Interestingly, the company is not planning a major overseas expansion in the near term. At the meeting, Elisa's chairman, Pekka Ketonen, said the company was following an opportunistic acquisition strategy but has not made any moves due to the high valuations of companies. "Elisa is also looking for acquisitions, but the outlook on that is not very likely at this time," he said.