Franco Bernabe has resigned as executive chairman of Telecom Italia at a board meeting on Thursday convened to find a business plan to rescue the heavily indebted company from a junking of its credit rating.
Mr Bernabe's resignation has been expected since last week when it became clear that there were differences over future strategy between the management and a powerful bloc of shareholders that owns more than a fifth of Telecom Italia's stock.
Mr Bernabe has advocated issuing stock to raise as much as €5bn to help reduce a net debt of close to €30bn, with credit agencies threatening a rating downgrade in the next few months to "junk" status unless the company brings its balance sheet under control.
However, any demand for shareholders to inject new cash into the company would likely be blocked by Telco, the shareholder pact between Telefonica, the Spanish telecoms rival, and a number of Italian institutions. Telefonica last month took a greater control of the shareholder group and is gradually buying out the Italian shareholders.
The rumours of Mr Bernabe's departure have helped the company's shares rise in Milan this week, in part owing to the receding chance of a capital raising.
Mr Bernabe announced his resignation following a lunch with the board on Thursday afternoon in Milan.
The departure of Mr Bernabe makes it more likely that Telecom Italia will pursue a debt reduction strategy based around asset sales and cost-cutting, which in the short term could mean jobs lost in Italy and the sale of its broadcast towers and parts of its real estate portfolio.
In the longer term, people with knowledge of the situation have suggested that Telefonica in particular could support a potential sale and break up of Telecom Italia's Brazilian business, which is a rival to the Spanish group in the country.
Mr Bernabe, 65, told a parliamentary hearing last week that Telecom Italia needed fresh capital to avoid a credit downgrade to "junk" but opposed any sale of the company's most valuable assets.
The sudden change of management will add further uncertainty for the company's long-suffering shareholders.
The group's stock has lost almost €30bn in value during Mr Bernabe's tenure in a wider depressed European telecoms sector. The group is now valued at €11.5bn, just over a third of its net debt.
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FOLLOW USΑκολουθήστε τη σελίδα του Euro2day.gr στο LinkedinTelecom Italia wrote down a further €2.2bn in goodwill for the first half of 2013, taking impairments close to €14bn over the past three years. In that period, €10bn was lost from Telecom Italia's market capitalisation as its share price more than halved.
The group's strategy has been complicated by failed initiatives to bring in new investors such as Hutchison Whampoa and split its fixed-line network.
In the meantime, the domestic market in Italy remains difficult given tough economic conditions and fierce competition from low priced rivals such as Wind and Three.
Mr Bernabe has been chief executive of Telecom Italia since 2008, and chairman since 2011. He was chief executive of Eni from 1992 to 1998, helping to turnround the group and oversee its privatisation. He became chief executive of Telecom Italia for the first time in 1998, but left in 1999 during its takeover by Olivetti to head an investment company, returning in 2008.
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